Glossary -> Capital Dividend
Capital Dividend
Income Tax Act s. 83(2), Reg. 2101
Canadian controlled private corporations (CCPCs) keep track of certain non-taxable income amounts, and are able to pay these amounts to shareholders as a capital dividend. The capital dividend is not taxable to the shareholders, thus is not reported on a T5 and is not reported on the tax return of the recipient. The corporation must file a capital dividend election when the dividend is paid or becomes payable.
The non-taxable income amounts are tracked in the company's capital dividend account (CDA), and include the non-taxable portion of capital gains, less the non-allowable portion of capital losses, plus the non-taxable portion of gains on eligible capital property (such as goodwill), plus non-taxable life insurance proceeds. The CDA balance is reduced by capital dividends paid by the corporation.
For certain gifts, such as a gift/donation of certain listed securities to a qualified donee, the taxable amount of the capital gain is deemed to be zero. Thus, the full amount of the capital gain is non-taxable, so is added to the CDA balance.
TaxTips.ca Resources
Donating Shares or Other Capital Property - can eliminate capital gains
Canada Revenue Agency (CRA) Resources
Revised: October 26, 2023