The capital dividend account (CDA) keep tracks of various tax-free amounts accumulated by a Canadian Controlled Private Corporation (CCPC). These amounts may be distribute tax-free to shareholders.
Filing and declaring a capital dividend, Section 2101 of the Income Tax Regulations
- Calculation of capital dividend account
- Completion of prescribed Form T2054 (Election for a Capital Dividend Under Subsection 83(2))
- A certified copy of the director’s resolution
The filing deadline for the election is on or before the earlier of the day that the dividend is paid or payable.
Calculation of capital dividend account, paragraph 89(1)(b) of the Income Tax Act
The CDA includes:
- The non-taxable portion of the corporation’s capital gains net of capital losses.
- Capital dividends received by the corporation.
- The non-taxable portion of any gains on the sale of eligible capital property (ECP), such as goodwill. New rules regarding the ECP, after January 1, 2017, you can pay out the CDA as early as the day after the sale, rather than waiting until the first day of the following tax year.
- The net proceeds of life insurance policies received by the corporation.
Caution, a part III tax of 60% will be assess for excessive of dividend over the CDA balance. To verify your CDA balance, you can file Schedule 89 with the Canada Revenue Agency.