Capital Dividend Account: How a Canadian Corporation Makes an Election

A capital dividend account is a corporate tax calculation, not a bank balance. Confirm the balance and file a valid election before paying a dividend intended to be tax-free to a Canadian-resident shareholder.

Start with the facts that change the answer

The account can include specified tax-free amounts, such as the non-taxable portion of certain capital gains, but transactions and adjustments affect the balance. A corporation can face significant tax if it elects more than the available balance. Do not infer the amount from retained earnings, cash on hand or a bookkeeping label; reconcile each statutory component with tax returns and supporting statements.

Document your next step

Before declaring or paying the dividend, have the corporation’s accountant calculate the balance at the relevant time, confirm shareholder residence and prepare the required election. The election deadline, filing method and supporting records matter. Keep board resolutions, the dividend declaration, the election form and the calculation together. Ask a tax professional to review prior elections or a shortfall rather than attempting a retrospective fix from a rough estimate.

Canada Revenue Agency: Capital dividend account

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Sources and limits

Source: Canada Revenue Agency: Capital dividend account. Corporate elections are technical and errors can trigger tax; confirm the current statutory balance and filing requirements with a tax professional.

General information based on federal and national rules; provincial rules may differ. Confirm with the official body before acting.