Difference between revisions of "Capital dividend account"

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'''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 <ref>Bollefer S.F., Bernstein J., 2009, p.102-103</ref>.
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'''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 recieved tax- free by the recipient shareholder. <ref>Bollefer S.F., Bernstein J., 2009, p.102-103</ref>.
  
 
==Conditions==
 
==Conditions==
 
The terms determining whether a corporation qualifies for a '''CDA''' <ref>Bollefer S.F., Bernstein J., 2009, p.102-103</ref>:
 
The terms determining whether a corporation qualifies for a '''CDA''' <ref>Bollefer S.F., Bernstein J., 2009, p.102-103</ref>:
* the corporation must be a Canadian and private corporation throughout at least one taxation year;
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* 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.
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* 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”. The mortality gain on life [[insurance]] proceeds recieved by the corporation as a beneficiary.
  
 
==Meaning==
 
==Meaning==
As Guglielmo Maisto write:  
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As Guglielmo Maisto writes:  
 
"The most relevant components of Capital Dividend Account are<ref>Maisto G., International Bureau of Fiscal [[Documentation]], 2012, p.473</ref>:  
 
"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
* any capital dividends recieved by the corporation from other private corporations
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* capital dividends are 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."
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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==
 
==Account credit==
The CDA credit is the aggregated of every certain receipts minus capital dividends paid by the corporation<ref>Bollefer S.F., Bernstein J., 2009, p.102-103</ref>.
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The CDA credit is the aggregated of every certain receipts, minus capital dividends paid by the corporation<ref>Bollefer S.F., Bernstein J., 2009, p.102-103</ref>.
  
 
==Footnotes==
 
==Footnotes==
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==References==
 
==References==
* Bollefer S.F., Bernstein J., (2009) ''[https://books.google.pl/books?id=rlkZQBSuReYC&lpg=PA156&dq=Capital%20dividend%20account&hl=pl&pg=PP1#v=onepage&q&f=false Shareholders' Agreements: A Tax and Legal Guide]''
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* Bollefer S.F., Bernstein J., (2009) ''[https://books.google.pl/books?id=rlkZQBSuReYC&lpg=PA156&dq=Capital%20dividend%20account&hl=pl&pg=PP1#v=onepage&q&f=false Shareholders' Agreements: A Tax and Legal Guide]'' CCH Canadian Limited, USA
* CCH Australia, Limited, (2011) ''[https://books.google.pl/books?id=YEZOcwbUOl4C&lpg=PA118&dq=Capital%20dividend%20account%20pdf&hl=pl&pg=PA118#v=onepage&q=Capital%20dividend%20account%20pdf&f=false Australian Master Tax Guide 2011]''
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* CCH Australia, Limited, (2011) ''[https://books.google.pl/books?id=YEZOcwbUOl4C&lpg=PA118&dq=Capital%20dividend%20account%20pdf&hl=pl&pg=PA118#v=onepage&q=Capital%20dividend%20account%20pdf&f=false Australian Master Tax Guide 2011]'' McPherson's Printing Group, Australia
* CCH Australia Staff, (2012) ''[https://books.google.pl/books?id=WZFiWy8qrrEC&lpg=PA112&dq=Capital%20dividend%20account%20pdf&hl=pl&pg=PR3#v=onepage&q=Capital%20dividend%20account%20pdf&f=false Australian Master Tax Guide 2012]''
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* CCH Australia Staff, (2012) ''[https://books.google.pl/books?id=WZFiWy8qrrEC&lpg=PA112&dq=Capital%20dividend%20account%20pdf&hl=pl&pg=PR3#v=onepage&q=Capital%20dividend%20account%20pdf&f=false Australian Master Tax Guide 2012]'' McPherson's Printing Group, Australia
* CCH Canadian Limited, (2010) ''[https://books.google.pl/books?id=pHsBFpTdYQ8C&lpg=PA569&dq=Capital%20dividend&hl=pl&pg=PA674#v=onepage&q=Capital%20dividend%20account&f=false Canadian Income Tax Act: With Income Tax Regulations]''
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* CCH Canadian Limited, (2010) ''[https://books.google.pl/books?id=pHsBFpTdYQ8C&lpg=PA569&dq=Capital%20dividend&hl=pl&pg=PA674#v=onepage&q=Capital%20dividend%20account&f=false Canadian Income Tax Act: With Income Tax Regulations]'' CCH Canadian Limited, USA
* Dowling R D., (2013) ''[https://books.google.pl/books?id=WG0dDBTJFTYC&lpg=PT148&dq=Capital%20dividend%20account&hl=pl&pg=PT148#v=onepage&q=Capital%20dividend%20account&f=false Are You Taking Ownership of Your Career?: A Guide for the Canadian]''
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* Dowling R D., (2013) ''[https://books.google.pl/books?id=WG0dDBTJFTYC&lpg=PT148&dq=Capital%20dividend%20account&hl=pl&pg=PT148#v=onepage&q=Capital%20dividend%20account&f=false Are You Taking Ownership of Your Career?: A Guide for the Canadian]'' FriesenPress, Canada
* Maisto G., International Bureau of Fiscal [[Documentation]], (2012) ''[https://books.google.pl/books?id=DCM590el8UsC&lpg=PA473&dq=Capital%20dividend%20account%20definition&hl=pl&pg=PA473#v=onepage&q=Capital%20dividend%20account%20definition&f=false Taxation of Intercompany Dividends Under Tax Treaties and EU Law]''
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* Maisto G., International Bureau of Fiscal [[Documentation]], (2012) ''[https://books.google.pl/books?id=DCM590el8UsC&lpg=PA473&dq=Capital%20dividend%20account%20definition&hl=pl&pg=PA473#v=onepage&q=Capital%20dividend%20account%20definition&f=false Taxation of Intercompany Dividends Under Tax Treaties and EU Law]'' EC and International Tax Law Series, Vol. 8
  
 
{{a|Michał Skrabski}}
 
{{a|Michał Skrabski}}
 
[[Category:Financial management]]
 
[[Category:Financial management]]

Revision as of 21:52, 28 May 2019

Capital dividend account
Primary topic
Related topics
Methods and techniques

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 recieved 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 recieved by the corporation, tax free amounts received by the corporation on the sale of “eligible capital property”. The mortality gain on life insurance proceeds recieved 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

  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