Capital dividend account

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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 (Canadian), 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. (Stuart F. Bollefer, Jack Bernstein)


The terms determining whether a corporation qualifies for a CDA:

  • 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.


Author: Michał Skrabski