Which statement describes eligible dividends and non-eligible dividends for tax purposes?

• A. Eligible dividends come from higher‑tax corporations and receive a larger dividend tax credit
• B. Non-eligible dividends receive a larger tax credit
• C. There is no difference for tax purposes
• D. Eligible dividends have a smaller gross-up and smaller tax credit

Answer: (A)

Dividends are taxed with two separate adjustments to reflect corporate taxes already paid. Eligible dividends come from corporations taxed at the higher general corporate rate, so they receive a larger gross‑up and a larger dividend tax credit, which lowers the investor’s net tax. Non-eligible dividends come from corporations taxed at a lower rate on investment income, with a smaller gross‑up and a smaller tax credit. This is why the statement describing eligible dividends as arising from higher‑tax corporations and receiving a larger dividend tax credit is the best fit. The other options contradict how the tax credits and gross‑ups differ between eligible and non‑eligible dividends.