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Synthetic DRIP in Canada: how it works

A synthetic DRIP is a dividend reinvestment plan run by your broker. Each dividend buys as many whole shares as it can, and any leftover cash lands in your account. Every share it buys raises your adjusted cost base.

Beginner guide · 7-minute read · Updated 2026-11-01

What a synthetic DRIP is

DRIP stands for dividend reinvestment plan. Instead of cash, your Dividend buys more shares of the same stock.

There are two ways to get one in Canada:

• A company DRIP, also called a full or treasury DRIP. You sign up through the company's transfer agent, and the company may issue new shares. Some buy fractions of a share. Some offer a small discount.
• A synthetic DRIP, set up at your broker. The broker does the reinvesting for you, inside your normal account. It's called "synthetic" because the company isn't running it.

Most people use the synthetic kind, because it's a setting in your account, not a separate sign-up.

How a synthetic DRIP works

The rules below are typical. Each broker sets its own, so check your broker's help page.

1. The dividend is paid on the payment date.
2. The broker works out how many whole shares it buys, generally at the market price around that date.
3. Whole shares go into your account. No fractions.
4. The leftover cash is paid to you. If the dividend can't buy even one share, you just get cash.
5. There's usually no trading fee on the reinvested shares.

That whole-share rule matters for small positions. If your quarterly dividend is smaller than one share's price, a synthetic DRIP does nothing at all.

Whether a company's DRIP discount carries over to a synthetic DRIP depends on the broker and the company. Ask before you count on it.

A worked example (hypothetical)

You own 100 shares of a made-up Canadian company, bought at $50. Your ACB is $5,000. It pays $0.60 a share every quarter. Your broker's synthetic DRIP is on. Then the price slides over the year.

Two checks on the totals:

• Dividends split two ways: $195 reinvested + $48.60 in cash = $243.60. That matches the dividend column.
• ACB: $5,000 + $195 = $5,195, on 104 shares. That's about $49.95 a share ($5,195 ÷ 104).

At the year-end price of $45, your 104 shares are worth $4,680. That's −$515 against your ACB of $5,195. The DRIP bought shares all year while the price fell. More shares didn't stop the slide.

The tax part people miss

In a regular (non-registered) account, the whole $243.60 is taxable this year. That includes the $195 you never saw as cash.

Canadian eligible dividends still get the gross-up and the dividend tax credit. Your T5 slip shows the full amount, reinvested or not.

The good news is the ACB. Each reinvested share was bought with money you already paid tax on. So its cost goes into your ACB. When you sell, a higher ACB means a smaller gain. If you forget to add it, you pay tax on that money twice. My guide to reinvested dividends and cost basis shows that mistake in numbers.

Your ACB is averaged across all your shares of that company in your regular accounts. Your broker's book value may not track it the way the CRA wants, so keep your own record. Our Adjusted cost base page explains the averaging.

In a TFSA or RRSP, none of this applies. There's no tax on the dividend and no ACB to track. That's one reason many people turn the DRIP on inside registered accounts first. See where to hold dividend stocks.

Should you turn it on?

A synthetic DRIP is a tool, not a strategy. It's good at one thing: putting dividends back to work without you thinking about it.

It works well when:

• you're building a position for the long run and don't need the cash;
• the position is big enough that each dividend buys at least one share;
• you're happy to keep buying this company at whatever the price is.

It works less well when:

• you want to choose where new money goes, instead of always adding to the same stock;
• the business is getting worse, and the DRIP keeps buying more of it;
• you sell covered calls and want round lots of 100 shares. A DRIP leaves odd share counts like 104.

The side-by-side is in DRIP vs taking dividends in cash. For how dividends fit into a whole plan, read dividend investing explained. And if you sell calls on your shares, the wheel strategy explains the 100-share rhythm.

As of October 2026, the CRA explains ACB and reinvested dividends on canada.ca. Your broker's help page lists its own DRIP rules.

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