Final answer:
Dividends from Canadian corporations to Canadian residents qualify for the dividend gross-up and credit mechanism. There are two types of dividends: eligible and non-eligible, which come with different tax rates and credits.
Step-by-step explanation:
The question relates to taxation of dividend income, and specifically, which dividends qualify for the dividend gross-up and credit mechanism. In Canada, this mechanism is designed to prevent double taxation of dividend income. Dividends paid by Canadian corporations to Canadian residents are eligible for the dividend tax credit, which includes the gross-up process. Generally, there are two types of eligible dividends: eligible and non-eligible. Eligible dividends come from large corporations and are taxed at a higher rate but also come with a higher dividend tax credit.
Non-eligible dividends, usually paid by smaller corporations, are taxed at a lower rate but have a smaller associated tax credit. Your investment statements or T5 tax forms will often indicate whether a dividend is eligible or non-eligible.