Dividends Received Deduction

The dividends received deduction (DRD) is a tax provision in some countries that allows corporations to deduct a portion of the dividends they receive from other companies holding shares. This deduction is designed to reduce the impact of double taxation, where both the company paying the dividend and the company receiving the dividend would otherwise be taxed on the same income. The amount of the deduction typically depends on the percentage of ownership the receiving corporation has in the company paying the dividends.

Example

A corporation that owns shares in another company receives $100,000 in dividends and can claim a 70% deduction under the DRD, reducing its taxable income.