# How can a private company issue eligible dividends?



## asadim (Mar 5, 2017)

According to TheTaxIssue website:



> A CCPC that pays any dividend can designate it as an eligible dividend.


It also states that:



> If an eligible dividend exceeds the GRIP as at year end, a special 20% tax is assessed on the excess.


It seems the answer to my question depends on the value of the GRIP. Yet it is important to note that I haven't managed to wrap my head around the GRIP calculation yet! For instance, how do you calculate the company’s after-tax business income that did not benefit from the small business deduction?

If someone could put this in simpler forms or even better provide a common example I would appreciate it.


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## Nerd Investor (Nov 3, 2015)

asadim said:


> According to TheTaxIssue website:
> 
> 
> 
> ...


To put it as simply as possible: the first $500,000 of taxable business income earned by a corporation is subject to small business tax rates. Anything earned above that is subject to general corporate rates, and it's this after tax income that goes into your GRIP pool. The only other common thing that would go into your GRIP balance would be eligible dividends received by your corporation (ie: if your corp had an investment account and owned shares of RBC, or Bell or something). 

To sum up, if your corporation isn't making over $500,000 and you don't have any corporate investments GRIP (and eligible dividends by extension) will likely be a non-issue for you.


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## tygrus (Mar 13, 2012)

Your company would need to be listed on the TSX to have your dividends taxed as elligible.


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## Puppito (May 18, 2017)

tygrus said:


> Your company would need to be listed on the TSX to have your dividends taxed as elligible.


Private entities can also issue eligible dividends to the extent they have a positive GRIP balance. Higher taxes paid on income earned beyond the $500k small business limit increase the GRIP balance.


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## mark0f0 (Oct 1, 2016)

tygrus said:


> Your company would need to be listed on the TSX to have your dividends taxed as elligible.


Ummm, no. Pretty sure this isn't true. Where pro rata shares of business ownership is traded has absolutely nothing to do with the eligibility of dividends for "eligible" treatment.


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## Dkogan (May 20, 2017)

*Eligible dividends*

As mentioned above, any company be it private or otherwise can issue eligible dividends. In the corporate tax return T2, there's a schedule 53 which will calculate your GRIP balance starting in 2006 for any company deemed to be a CCPC (Canadian Controlled Private Corporation). Also, as mentioned above, if the company has never exceeded the small business income threshold, than all of its dividends will be ineligible.


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## asadim (Mar 5, 2017)

That makes sense. Thanks everyone!


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