Non-eligible dividends , also commonly referred to as " ordinary dividends ," generally arise from income that has not been subject to the general corporate tax rate that would allow for the payment of an eligible dividend. This is particularly true for income from a Canadian-controlled private corporation that has benefited from the small business tax rate.
An ineligible dividend , or " ordinary dividend ," is a taxable dividend for the shareholder who receives it. For an individual, it is subject to the dividend surcharge and credit system. The surcharge applicable to an ineligible dividend is lower than that applicable to an eligible dividend, primarily to reflect the level of corporate tax paid. The applicable dividend credit also differs from that granted for an eligible dividend.
Thus, the "ordinary dividend" is taxable income for the shareholder who receives it. However, its tax treatment differs from that of other forms of income the shareholder might receive, such as a salary, due in particular to the dividend surcharge mechanism and the dividend tax credit.
Once declared by the Board of Directors of the Company, subject to any unanimous shareholder agreement transferring this power, the "ordinary dividend" may be paid by the Company to the shareholders concerned according to various payment methods . It may, in particular, be payable: 1) in a single payment, on the date of its declaration or on a specified date; 2) by consecutive and equal monthly payments; 3) on fixed dates determined in advance by the Board of Directors; or 4) on any other date determined by the Board of Directors, in accordance with the resolution declaring the dividend.
Indeed, the board of directors, subject to any applicable unanimous shareholders' agreement, may determine the payment terms for the declared dividend. In most cases, the board will determine these terms based on the company's financial situation and liquidity at the time the dividend is declared, taking into account its retained earnings and operating budget. In all cases, the declaration and payment of the dividend must comply with the financial criteria and other requirements stipulated by the law governing the company.