General Rate Income Pool (GRIP)

GRIP is a notional pool tracked by CCPCs that represents income taxed at the general corporate rate and supports the payment of eligible dividends to shareholders.

Federal · Updated September 23, 2026

Definition

The General Rate Income Pool (GRIP) is a cumulative notional balance, defined in ITA s.89(1), tracked by Canadian-Controlled Private Corporations. GRIP represents corporate income that was taxed at the full general federal rate rather than the reduced SBD rate, and it is the maximum amount of eligible dividends a CCPC can pay in a year. Eligible dividends carry a higher gross-up and dividend tax credit in the shareholder's hands, preserving the integration principle.

Key rules

  • Applies to CCPCs and deposit insurance corporations: non-CCPCs track instead.
  • Formula (ITA s.89(1) "GRIP"): opening GRIP plus the general-rate taxed portion of taxable income for the year, plus eligible dividends received from connected or non-connected corporations, minus eligible dividends paid in the prior year.
  • General rate portion (for 2026): A simplified ordinary case is (taxable income − income benefiting from the SBD − AII limited to taxable income) × 72%. Use Schedule 53 for the complete calculation and special adjustments. The 72% factor reflects the prescribed "general rate factor" in the GRIP formula, which approximates the after-tax portion of general-rate-taxed income.
  • Eligible dividend designation (ITA s.89(14)): a CCPC must make a written designation at or before the time the dividend is paid. Each shareholder must receive notice.
  • Part III.1 tax (ITA s.185.1): an excessive eligible dividend designation triggers a 20% penalty tax (with an additional 10% on the whole designation where the statutory tax-avoidance rule applies). A qualifying s.185.1(2) election can treat the excess as a non-eligible dividend; that relief is unavailable for the 30% avoidance case.
  • 2026 shareholder impact: eligible dividend gross-up of 38% and a federal dividend tax credit of 15.0198% of the grossed-up amount (roughly 6/11 of the gross-up).

GRIP addition formula (simplified, 2026)

GRIP addition = 0.72 × (Taxable income − SBD-eligible income − AII) Plus: eligible dividends received Less: eligible dividends paid in the prior year

Example

Granite Build Corp., a BC CCPC, had the following 2025 results used for its 2026 GRIP:

  • Taxable income: $900,000
  • Active business income eligible for SBD: $500,000
  • AII: $0

General-rate portion for 2025: $900,000 − $500,000 = $400,000.

GRIP addition: 0.72 × $400,000 = $288,000.

Opening GRIP on January 1, 2026: $288,000. Granite declares a $200,000 dividend on June 30, 2026 and designates it as eligible.

  • Unused 2026 designation capacity: assuming no other 2026 GRIP changes and no prior-year dividends to deduct, $288,000 − $200,000 = $88,000. The statutory end-of-2026 GRIP remains $288,000 for the excessive-designation test; the $200,000 paid in 2026 is deducted in the next year’s GRIP formula.
  • Shareholder treatment (individual): grossed-up amount is $200,000 × 1.38 = $276,000 included in income. Federal DTC is $276,000 × 15.0198% = $41,455. The net federal rate on eligible dividends in 2026 tops out near 24.81% in the highest bracket, much less than the non-eligible dividend top federal rate near 27.57%. These are federal marginal rates before other personal adjustments, not combined provincial rates.

Journal entry when the dividend is declared:

Dr Retained earnings 200,000 Cr Dividend payable 200,000

No GST/HST or Part I tax arises from paying the dividend, but Part IV tax may apply to corporate recipients. See .

Common mistakes

  • Paying an eligible dividend without checking GRIP. An excessive designation triggers the 20% Part III.1 tax even if done in good faith.
  • Forgetting the written designation. CRA requires documented notice to each shareholder at or before payment (ITA s.89(14)).
  • Adding AII to GRIP. Do not confuse AII with the adjusted aggregate investment income used for the SBD reduction. Eligible dividends received may increase GRIP under their own rule.
  • Using the current year's eligible dividends paid in the formula. The deduction is eligible dividends paid in the prior year.
  • Ignoring GRIP additions from eligible dividends received from a connected corporation. These flow through to the recipient's GRIP.

Sources: CRA’s GRIP timing, complete income-pool formulas, and Part III.1 tax.

Related concepts

Sources

  • Income Tax Act s.89(1)
  • Income Tax Act s.89(14)
  • Income Tax Act s.185.1

See also

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