Difference between revisions of "Capital dividend account"

Line 21: Line 21:
  
 
==Meaning==
 
==Meaning==
As Guglielmo Maisto write <ref>Maisto G., International Bureau of Fiscal [[Documentation]], 2012, p.473</ref>:
+
As Guglielmo Maisto write:
"The most relevant components of Capital Dividend Account are:  
+
"The most relevant components of Capital Dividend Account are<ref>Maisto G., International Bureau of Fiscal [[Documentation]], 2012, p.473</ref>:  
 
* the tax free portion (currently 50%) of any capital gains net of capital losses earned by the corporation;  
 
* 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
 
* net life insurance proceeds recieved by the corporation

Revision as of 02:41, 28 May 2019

Capital dividend account
Primary topic
Related topics
Methods and techniques

Capital dividend account- (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, which will be recieved tax- free by the recipient shareholder. The capital dividend account is available only to certain private corporations resident in Canada [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 recieved by the corporation, tax free amounts received by the corporation on the sale of “eligible capital property”, and the mortality gain on life insurance proceeds recieved by the corporation as a beneficiary.

Meaning

As Guglielmo Maisto write: "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
  • any capital dividends recieved by the corporation from other private corporations

While capital dividendes 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 dividendes and capital dividendes."

Account credit

The CDA credit is the aggregated of every certain receipts minus capital dividends paid by the corporation[4].

Footnotes

  1. Bollefer S.F., Bernstein J., 2009, p.102-103
  2. Bollefer S.F., Bernstein J., 2009, p.102-103
  3. Maisto G., International Bureau of Fiscal Documentation, 2012, p.473
  4. Bollefer S.F., Bernstein J., 2009, p.102-103

References

Author: Michał Skrabski