Final answer:
The federal dividend tax credit is not applicable to foreign dividends because they are taxed under a different system and are not subject to the Canadian tax system.
Step-by-step explanation:
The federal dividend tax credit cannot be claimed if you receive foreign dividends. The federal dividend tax credit in Canada is designed to alleviate the tax burden on income that has been taxed at the corporate level, therefore allowing a tax advantage for those who receive dividends from Canadian corporations. This credit is available for two types of dividends: eligible and non-eligible dividends. Eligible dividends are those paid out by companies that meet certain criteria and they carry a higher tax credit because these companies pay a higher rate of corporate tax.
However, stock dividends — which are additional shares given to shareholders in lieu of cash — are not taxable and hence do not qualify for the dividend tax credit. Most crucially, foreign dividends do not qualify for the federal dividend tax credit because they do not come under the Canadian tax system and are typically subject to their respective country’s taxation. Therefore, when dealing with dividends from outside of Canada, the tax credit is not applicable.