Capital dividend account
| Capital dividend account |
|---|
| See also |
Capital dividend account- The capital dividend account (CDA) is available only to certain private corporations resident in Canada. CDA is not an actual bank account or financial institution. It is a special, national, tax account of an corporation that fulfills the conditions. Certain receipts are credited to the capital dividend account, and when the corporation declares a dividend, or there is a deemed dividend on the redemption of shares, to the extent of the amount recorded in the capital dividend account, the corporation may elect that the dividend be a capital dividend. Capital dividend will be received tax- free by the recipient shareholder [1].
Conditions
The terms determining whether a corporation qualifies for a CDA[2]:
- the corporation must be a Canadian, and private corporation throughout at least one taxation year;
- the corporation must obtain certain tax-free income, such as the non-taxable portion of capital gains accured while the corporation was a CCPC (Canadian Controlled Private Corporation), and realized by the corporation (net of the non-allowable portion of any capital losses), capital dividends received by the corporation, tax free amounts received by the corporation on the sale of “eligible capital property”. The mortality gain on life insurance proceeds received by the corporation as a beneficiary.
Meaning
As Guglielmo Maisto writes: "The most relevant components of Capital Dividend Account are[3]:
- the tax free portion (currently 50%) of any capital gains net of capital losses earned by the corporation;
- net life insurance proceeds recieved by the corporation
- capital dividends are recieved by the corporation from other private corporations.
While capital dividends are a useful tax advantage, they cannot be paid by public corporations, and the classification is of little import to foreign shareholders given that Canadian withholding tax applies to both, taxable dividends, and capital dividends."
Account credit
The CDA credit is the aggregated of every certain receipts, minus capital dividends paid by the corporation[4].
Footnotes
- ↑ Bollefer S.F., Bernstein J., 2009, p.102-103
- ↑ Bollefer S.F., Bernstein J., 2009, p.102-103
- ↑ Maisto G., International Bureau of Fiscal Documentation, 2012, p.473
- ↑ Bollefer S.F., Bernstein J., 2009, p.102-103
References
- Bollefer S.F., Bernstein J., (2009) Shareholders' Agreements: A Tax and Legal Guide CCH Canadian Limited, USA
- CCH Australia, Limited, (2011) Australian Master Tax Guide 2011 McPherson's Printing Group, Australia
- CCH Australia Staff, (2012) Australian Master Tax Guide 2012 McPherson's Printing Group, Australia
- CCH Canadian Limited, (2010) Canadian Income Tax Act: With Income Tax Regulations CCH Canadian Limited, USA
- Dowling R D., (2013) Are You Taking Ownership of Your Career?: A Guide for the Canadian FriesenPress, Canada
- Maisto G., International Bureau of Fiscal Documentation, (2012) Taxation of Intercompany Dividends Under Tax Treaties and EU Law EC and International Tax Law Series, Vol. 8
Author: Michał Skrabski
