How do I complete T2 Schedule 3 for dividends received and paid?
As of October 2026, T2 Schedule 3 has four parts. Part 1 lists dividends received; its s.112 and s.113 total goes to T2 line 320. Part 2 computes Part IV tax for line 712: 38 1/3% on non connected dividends, a share of the payer's refund on connected ones. Parts 3 and 4 total taxable dividends paid for the refund.
Schedule 3 has four parts, and each one feeds a different T2 line
The current form is the 2025 version of T2 Schedule 3, Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation, titled for 2019 and later tax years canada.ca. A corporation uses it to report section 83 capital dividends received, deductible dividends under s.112, s.113 and s.138(6), and taxable dividends paid that qualify for a dividend refund
canada.ca.
| Part | What you enter | Where the total goes |
|---|---|---|
| Part 1, dividends received | One row per payer (and per payer tax year), columns A to M | Column E total to Schedule 1 line 402; amount 1C (columns 235 plus 240) to T2 line 320 |
| Part 2, Part IV tax payable | Part IV tax before deductions, less Part IV.1 tax and 38 1/3% of losses claimed | Line 360 to T2 line 712; amounts 2G and 2J to amounts C and D on page 7 of the T2 |
| Part 3, dividends paid that qualify for a refund | Connected recipients by name, then everyone else on line 450 | Line 460 total; 38 1/3% of line 465 to amount AA and of line 470 to amount DD on page 7 |
| Part 4, total dividends paid | All dividends paid, less the ones that never qualify | Amount 4B, which should equal line 460 |
The Part IV calculations apply only to private corporations and subject corporations as defined in s.186(3); a public corporation still lists taxable dividends in column G but enters 0 in columns K and L canada.ca. Line 100 lets a corporation that is exempt under subparagraph 186.1(b)(ii) or (vii) skip to Part 3
canada.ca.
Which Part 1 columns do you fill for each dividend received?
Every payer gets columns A, E, F, G and H. Columns B, C, D, I and J are for a connected payer only canada.ca. Leave out dividends from foreign non affiliates, which the form excludes from Part 1.
| Column (line) | What it holds | Who fills it |
|---|---|---|
| A (200) | Payer corporation name | Every payer |
| B (205) | Enter 1 if the payer is connected | Connected payers |
| C (210) | Payer business number | Connected payers |
| D (220) | Payer tax year end in which the dividends were paid, YYYYMMDD | Connected payers |
| E (230) | Capital dividends under s.83 (not taxable) | Every payer |
| F (235) | Taxable dividends deductible from income under s.113(1)(c) | Foreign affiliate dividends |
| G (240) | Taxable dividends deductible under s.112, s.113(2), s.138(6), s.113(1)(a), (a.1), (b) or (d) | Every taxable dividend |
| H (242) | Eligible dividends included in column G | Every payer |
| I (250) | Total taxable dividends the connected payer paid in that tax year | Connected payers |
| J (260) | The connected payer's dividend refund for that tax year | Connected payers |
| K (265) | Part IV tax on eligible dividends | Every payer |
| L (275) | Part IV tax before deductions | Every payer |
| M (280) | Connected Part IV tax that came out of the payer's ERDTOH | Connected payers |
For a non connected payer, column K is column H times 38 1/3% and column L is column G times 38 1/3%. For a connected payer, both switch to a share of the payer's refund: column J divided by column I, times column H for K or column G for L canada.ca. That is the s.186(1)(b) rule, and it's why a connected payer that gets no refund produces no Part IV tax
laws-lois.justice.gc.ca.
Connected means your client's corporation controls the payer, or owns more than 10% of its full voting shares and shares worth more than 10% of the fair market value of all its shares canada.ca. For Part IV, s.186(2) counts shares held by persons not dealing at arm's length with the recipient when testing control
laws-lois.justice.gc.ca. The traps in that test are on the Part IV tax page.
Worked example: Holdco claims $212,000 on line 320 and owes $29,133.33 on line 712
Holdco is a CCPC that owns all of Opco, and both have a December 31 year end. In the year Holdco receives a $200,000 non eligible dividend and a $20,000 capital dividend from Opco, plus $12,000 of eligible dividends on public bank shares. Opco paid $250,000 of taxable dividends in total and got a $30,666.67 dividend refund, all from its non eligible RDTOH (the figures on the RDTOH page).
| Schedule 3 entry | Opco row (connected) | Bank row (not connected) | Total |
|---|---|---|---|
| Column B | 1 | Blank | |
| Column E, capital dividends | $20,000.00 | 0 | $20,000.00 to Schedule 1 line 402 |
| Column G, taxable dividends | $200,000.00 | $12,000.00 | 1B and 1C: $212,000.00 to T2 line 320 |
| Column H, eligible dividends | 0 | $12,000.00 | 1E: $12,000.00 |
| Column I, Opco's total taxable dividends paid | $250,000.00 | ||
| Column J, Opco's dividend refund | $30,666.67 | ||
| Column K | 0 | $4,600.00 (38 1/3% × $12,000) | 1J and 1K: $4,600.00 |
| Column L | $24,533.33 ($30,666.67 ÷ $250,000 × $200,000) | $4,600.00 | 1H: $29,133.33 |
| Column M | 0 (no refund came from Opco's ERDTOH) | 2E: 0 | |
| Part 2, line 360 | $29,133.33 to T2 line 712 | ||
| Amount 2J | $4,600.00 to amount D, page 7 |
With no Part IV.1 tax and no losses claimed, amount 2B equals 1H and line 360 is $29,133.33 canada.ca. The $4,600 from the bank dividend feeds Holdco's eligible RDTOH, and the $24,533.33 from Opco feeds its non eligible RDTOH, because Opco's refund came from its non eligible pool
laws-lois.justice.gc.ca. The same totals appear on the Part IV tax page.
Line 320 of the T2 takes $212,000, the total of columns 235 and 240 canada.ca. The capital dividend never reaches line 320: if it was booked in net income, line 402 of Schedule 1 takes it back out
canada.ca.
How does the paying corporation fill in Part 3 and Part 4?
Part 3 lists taxable dividends paid that qualify for the refund. Each connected recipient gets its own row with its name, business number, the tax year end in which it received the dividends, the taxable dividends (column Q) and the eligible portion (column R). Dividends to everyone else go on line 450, with the eligible part on line 455 canada.ca.
| Opco line | Calculation | Amount |
|---|---|---|
| Column Q, to Holdco | Non eligible dividend | $200,000.00 |
| Line 450, to the individual shareholder | Non eligible dividend | $50,000.00 |
| Line 460, qualifying taxable dividends | $200,000 + $50,000 | $250,000.00 |
| Line 465, eligible dividends | Column R + line 455 | 0 |
| Line 470, non eligible dividends | $250,000 minus 0 | $250,000.00 |
| Amount 3B to amount DD, page 7 | 38 1/3% × $250,000 | $95,833.33 |
| Line 500, total dividends paid | $250,000 + $20,000 capital dividend | $270,000.00 |
| Line 510, capital dividend account | $20,000.00 | |
| Amount 4B | $270,000 minus $20,000 | $250,000.00 |
The $95,833.33 is only the dividend side. Subsection 129(1) refunds the lesser of that and the RDTOH balance, so Opco's refund stops at its $30,666.67 pool laws-lois.justice.gc.ca. Part 4 is required whenever line 460 differs from total dividends paid. It strips out capital dividends (line 510), capital gains dividends (520), dividends on shares described in s.129(1.2) (530) and taxable dividends paid to a controlling corporation that was bankrupt in the year (540)
canada.ca.
A dividend has to be paid, in cash or other property at fair market value, to count for the refund unless it is deemed paid. Stock dividends and s.84 deemed dividends qualify canada.ca. An eligible dividend in column R or on line 455 also needs a GRIP balance; see GRIP account.
Where do preparers go wrong on Schedule 3?
Two different "line 320"s. Line 320 on Schedule 3 is Part IV.1 tax from line 360 of Schedule 43, subtracted in Part 2. Line 320 of the T2 is the s.112 and s.113 deduction from amount 1C canada.ca.
Different year ends. If Opco's year end differs from Holdco's, Holdco may receive dividends from two Opco tax years. Use a separate row for each payer tax year. If the connected payer's year ends after Holdco's balance due day, you have to estimate the payer's dividend refund to compute Part IV tax canada.ca.
Losses against Part IV. Lines 330 to 345 claim current and prior year noncapital and farm losses, and 38 1/3% of the total comes off Part IV tax canada.ca. The guide confirms losses can reduce dividends subject to Part IV tax
canada.ca. The cost of using a loss this way is covered on the Part IV tax page.
Line 320 can create a loss. Because the s.112 deduction comes off net income on line 300, it can create or increase a noncapital loss for the year canada.ca. The deduction itself, and the s.55(2) risk on large dividends, are on intercorporate dividends.
Sources
Does a corporation that only paid dividends need Schedule 3?
Yes, if it paid taxable dividends that qualify for a dividend refund. The form lists those among the amounts corporations must report on it, through Parts 3 and 4 canada.ca. Without line 460 there is nothing to compute the refund from.
Where does a capital dividend received go on Schedule 3?
Column E, as a non taxable dividend under s.83. The column E total goes to line 402 of Schedule 1, not to T2 line 320 canada.ca. The payer reports the same dividend on line 510 in Part 4. See capital dividend account.
Which version of Schedule 3 do I use for a 2026 year end?
The latest posted is the 2025 version, titled for 2019 and later tax years, as of October 2026 canada.ca.
What is column M for if column L already holds the Part IV tax?
Column M splits out the connected Part IV tax that goes into eligible RDTOH: only the part that caused a refund from the payer's ERDTOH canada.ca. It flows through amount 2E to 2G and amount C on page 7. Column L still drives the total Part IV tax payable.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.