Which type of dividends qualify for the dividend gross-up and credit mechanism?

Dividends that qualify for the dividend gross-up and credit mechanism are specifically those paid by Canadian corporations that are subject to Canadian taxation and are considered taxable dividends. This mechanism is designed to avoid double taxation on dividends by allowing individual shareholders to gross up the amount of dividends they receive and then claim a dividend tax credit when filing their tax returns.

This benefit is applicable to taxable dividends from Canadian-controlled private corporations as well as public corporations, ensuring that Canadian taxpayers receive some relief from the tax burden associated with these income sources. The aim is to balance the tax treatment of dividends to reflect the corporate taxes that have already been paid by the corporation before these profits are distributed to shareholders.

Other options, such as dividends from foreign corporations or dividends from private companies, do not qualify under this specific tax relief mechanism, as they are not subject to the same taxation rules laid out for Canadian corporations.