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.
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): (Taxable income − amount eligible for SBD − AAII − income taxed at the M&P rate where different) × 72%. 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 (increased to 30% if the excess is made with intent to avoid tax). A s.185.1(2) election can treat the excess as a non-eligible dividend.
- 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)
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
- AAII: $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.
- GRIP after dividend: $288,000 − $200,000 = $88,000. Granite can still pay up to $88,000 of eligible dividends in 2026.
- 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 rate near 33.82%.
Journal entry when the dividend is declared:
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 AAII to GRIP. Investment income does not feed GRIP. It is the opposite pool intended for non-eligible dividends.
- 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.
Related concepts
Authority
- Income Tax Act s.89(1)
- Income Tax Act s.89(14)
- Income Tax Act s.185.1
See also
Related entries
Small Business Deduction
The Small Business Deduction reduces federal corporate tax on the first $500,000 of active business income earned by a CCPC, dropping the federal rate from 15% to 9%.
Low Rate Income Pool (LRIP)
LRIP is the notional pool tracked by non-CCPCs that restricts their ability to pay eligible dividends, forcing any LRIP balance to be distributed as non-eligible dividends first.
Refundable Dividend Tax On Hand (RDTOH)
RDTOH is a refundable tax pool tracked by private corporations that returns a portion of federal tax on investment income when taxable dividends are paid to shareholders, split since 2019 into ERDTOH and NERDTOH.
Eligible vs. Non-Eligible Dividends
Canadian dividends are grossed up and taxed with an offsetting dividend tax credit; eligible dividends come from high-rate corporate income and receive a larger credit.
CCPC Status
A Canadian-Controlled Private Corporation is a private corporation resident in Canada that is not controlled by non-residents or public corporations, and CCPC status unlocks the small business deduction, refundable tax mechanics, and the capital gains exemption.
This entry is for general reference. It does not constitute professional tax advice. Consult a qualified Canadian accountant for your specific situation.