Folios

{"user_id":2806,"source":"https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c1-capital-dividends.html","source_type":"link","title":"Income Tax Folio S3-F2-C1, Capital Dividends","description":"This Chapter provides a general description of the capital dividend account (CDA) and the mechanism to pay tax-free dividends from that account. Certain dividends, called capital dividends, may be paid tax-free by private corporations to their Canadian-resident shareholders.","html":"\u003c!DOCTYPE html PUBLIC \"-//W3C//DTD HTML 4.0 Transitional//EN\" \"http://www.w3.org/TR/REC-html40/loose.dtd\"\u003e\n\u003chtml\u003e\u003cbody\u003e\n\u003ch1 id=\"cr-title\"\u003eIncome Tax Folio S3-F2-C1, Capital Dividends\u003c/h1\u003e\n \u003cdiv id=\"cr-content\"\u003e\u003cdiv id=\"readability-page-1\" class=\"page\"\u003e\u003cdiv\u003e\n\u003cdiv\u003e\n \n\n \n \u003cp\u003e\u003cstrong\u003eSeries 3: Property, Investments and Savings Plans\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eFolio 2: Dividends\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eChapter 1: Capital Dividends\u003c/strong\u003e\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch2 id=\"summary\"\u003eSummary\u003c/h2\u003e\n\u003cp\u003eThis Chapter discusses capital dividends and the capital dividend account (\u003cstrong\u003eCDA\u003c/strong\u003e). The CDA keeps track of various \u003cspan\u003etax-free\u003c/span\u003e surpluses accumulated by a private corporation. These surpluses may be distributed \u003cspan\u003etax-free\u003c/span\u003e in the form of capital dividends to the corporation’s \u003cspan\u003eCanadian-resident\u003c/span\u003e shareholders. A corporation paying a capital dividend must file an election in respect of the dividend when the dividend is paid or becomes payable (\u003cstrong\u003ecapital dividend election\u003c/strong\u003e). In certain circumstances, a \u003cspan\u003elate-filed\u003c/span\u003e election is acceptable (\u003cstrong\u003e\u003cspan\u003elate-filed\u003c/span\u003e capital dividend election\u003c/strong\u003e). If the corporation pays a capital dividend which exceeds the balance in its CDA, there will be additional tax consequences.\u003c/p\u003e\n\u003cp\u003eAs the CDA is a cumulative account it may include amounts from other tax years when the provisions of the Act regarding the CDA were different than today. Except where otherwise specifically noted, the commentary in this Chapter is based on the law as it is currently written. In order to determine the amount included in the CDA in an earlier tax year, reference should be made to the law applicable to that year.\u003c/p\u003e\n\u003cp\u003eThe Canada Revenue Agency (CRA) issues income tax folios to provide a summary of technical interpretations and positions regarding certain provisions contained in income tax law. Due to their technical nature, folios are used primarily by tax specialists and other individuals who have an interest in tax matters. While each paragraph in a chapter of a folio may relate to provisions of the law in force at the time it was written (see the \u003ca href=\"#toc22\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eApplication\u003c/a\u003e section), the information provided is not a substitute for the law. The reader should, therefore, consider the chapter’s information in light of the relevant provisions of the law in force for the particular tax year being considered.\u003c/p\u003e\n\u003cp\u003eThe CRA may have published additional guidance and detailed filing instructions on matters discussed in this Chapter. See the \u003ca href=\"https://www.canada.ca/en/revenue-agency/services/forms-publications.html\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eCRA Forms and publications\u003c/a\u003e webpage for this information and other topics that may be of interest.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\n\n\u003cdiv\u003e\n \n\n \n \u003ch2 id=\"discussion-and-interpretation\"\u003eDiscussion and interpretation\u003c/h2\u003e\n\u003ch3 id=\"overview-of-the-capital-dividend-account\"\u003eOverview of the capital dividend account\u003c/h3\u003e\n\u003cp\u003e\u003cstrong\u003e1.1\u003c/strong\u003e This section will give the reader an overview and general description of the capital dividend account (CDA) and the mechanism to pay \u003cspan\u003etax-free\u003c/span\u003e dividends from that account. It is not intended as a substitute for the more detailed and comprehensive discussion that follows it, which will be primarily of interest to tax specialists and other persons who may be responsible for calculating the CDA balance.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.2\u003c/strong\u003e Certain dividends, called \u003cstrong\u003ecapital dividends\u003c/strong\u003e, may be paid \u003cspan\u003etax-free\u003c/span\u003e by private corporations to their \u003cspan\u003eCanadian-resident\u003c/span\u003e shareholders. This means that no part of the dividend is included in computing the shareholder’s income.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.3\u003c/strong\u003e A capital dividend is paid from a private corporation’s CDA, which is an account that tracks various \u003cspan\u003etax-free\u003c/span\u003e amounts that have been accumulated by the corporation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.4\u003c/strong\u003e The most common \u003cspan\u003etax-free\u003c/span\u003e amounts included in the corporation’s CDA are:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe \u003cspan\u003etax-free\u003c/span\u003e portion of capital gains realized by the corporation to the extent they exceed the \u003cspan\u003enon-deductible\u003c/span\u003e portion of the corporation’s capital losses;\u003c/li\u003e\n\u003cli\u003elife insurance proceeds on certain policies; and\u003c/li\u003e\n\u003cli\u003ecapital dividends received from other corporations.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003e1.5\u003c/strong\u003e Because the CDA is a running balance account, capital dividends paid by the corporation will reduce the account balance.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.6\u003c/strong\u003e Where corporations are combined, components of each predecessor corporation’s CDA may be carried over to the surviving corporation. A combination of corporations could occur by amalgamation, merger or a \u003cspan\u003ewinding-up\u003c/span\u003e of a subsidiary corporation into its parent corporation. Capital dividends may also flow through partnerships to their partners and through trusts to their beneficiaries.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.7\u003c/strong\u003e For a corporation to pay a capital dividend, it must make an election to designate the entire amount of the dividend to be a capital dividend.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.8\u003c/strong\u003e The election is made by completing and filing \u003ca href=\"https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2054.html\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eForm T2054, Election for a Capital Dividend Under Subsection 83(2)\u003c/a\u003e with the CRA by the election due date. This date is the day on which the dividend becomes payable (or the day any part of the dividend is paid, if that takes place earlier). Certain additional documents must be filed with the election, including a schedule showing the calculation of the CDA balance immediately before the election. Schedule 89 (\u003ca href=\"https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2sch89.html\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eForm T2SCH89, Request for Capital Dividend Account Balance Verification\u003c/a\u003e) may be used for the purpose of making this calculation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.9\u003c/strong\u003e If the election is not filed by the election due date, it can still be filed late, together with payment of a \u003cspan\u003elate-filing\u003c/span\u003e penalty.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.10\u003c/strong\u003e If the amount elected to be a capital dividend exceeds the corporation’s CDA balance (called an \u003cstrong\u003eexcessive election\u003c/strong\u003e), only the amount that equals the CDA balance will be a capital dividend.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.11\u003c/strong\u003e Although no part of the excess amount will be included in the income of a recipient shareholder resident in Canada, the corporation itself will be subject to an additional tax (called the \u003cstrong\u003e\u003cspan\u003ePart III\u003c/span\u003e tax\u003c/strong\u003e) that is \u003cspan\u003e60% of\u003c/span\u003e the excess amount plus interest until the date of payment. Each person who received any portion of the dividend will be jointly and severally, or solidarily, liable with the corporation for the person’s proportionate share of the \u003cspan\u003ePart III\u003c/span\u003e tax and interest.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.12\u003c/strong\u003e An election is available to avoid the \u003cspan\u003ePart III\u003c/span\u003e tax. In that case, the excess portion of the dividend will be treated as an ordinary taxable dividend in the hands of the recipient shareholders who are then responsible for any resulting additional tax and interest. However, the election can generally be made only if there is agreement from all the shareholders who were entitled to any portion of the original dividend.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.13\u003c/strong\u003e \u003cspan\u003eAnti-avoidance\u003c/span\u003e rules may apply if transactions are structured to obtain a capital dividend. If these rules apply, the dividend will usually be treated as a taxable dividend, rather than as a capital dividend.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch3 id=\"capital-dividend-account-private-corporation-qualification\"\u003eCapital dividend account – private corporation qualification\u003c/h3\u003e\n\u003cp\u003e\u003cstrong\u003e1.14\u003c/strong\u003e A corporation that is a \u003cstrong\u003eprivate corporation\u003c/strong\u003e (defined in \u003cspan\u003esubsection 89(1)\u003c/span\u003e) may elect to pay its shareholders a capital dividend from its CDA pursuant to \u003cspan\u003esubsection 83(2)\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.15\u003c/strong\u003e A capital dividend may not be paid by a public corporation, even if it had previously been a private corporation and had a balance in its CDA immediately before it became a public corporation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.16\u003c/strong\u003e Amounts are added to and deducted from a corporation’s CDA only during the period described in ¶\u003ca href=\"#p1_26\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.26\u003c/a\u003e. However, certain changes in a corporation’s status will cause the corporation to lose its entire CDA balance:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003eif a private corporation that, at any time, had been controlled directly or indirectly in any manner whatever (see \u003cspan\u003esubsection 256(5.1)\u003c/span\u003e) by one or more \u003cspan\u003enon-resident\u003c/span\u003e persons becomes a \u003cspan\u003eCanadian-controlled\u003c/span\u003e private corporation (\u003cstrong\u003eCCPC\u003c/strong\u003e) at a particular time after \u003cspan\u003eMarch 31, 1977\u003c/span\u003e, otherwise than because of a change in the residence of one or more of the corporation’s shareholders, the CDA balance of the corporation will be reduced to nil immediately before the particular time (see \u003cspan\u003esubsection 89(1.1)\u003c/span\u003e)\u003c/li\u003e\n\u003cli\u003eif at any time after \u003cspan\u003eNovember 26, 1987\u003c/span\u003e, a corporation that was exempt from tax under \u003cspan\u003ePart I\u003c/span\u003e of the Act ceases to be exempt from tax, the CDA balance of the corporation will be reduced to nil immediately after that time (see \u003cspan\u003esubsection 89(1.2)\u003c/span\u003e).\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e¶\u003ca href=\"#p1_37\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.37\u003c/a\u003e describes similar conditions that restrict amounts that may be added to the CDA.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch3 id=\"capital-dividend-account-election\"\u003eCapital dividend account – election\u003c/h3\u003e\n\u003ch4 id=\"election-under-subsection-832-and-its-effects\"\u003eElection under subsection 83(2) and its effects\u003c/h4\u003e\n\u003cp id=\"p1_17\"\u003e\u003cstrong\u003e1.17\u003c/strong\u003e Pursuant to \u003cspan\u003esubsection 83(2)\u003c/span\u003e, an election to pay a capital dividend is to be made in the prescribed form and manner. Specifically, the prescribed form is \u003cspan\u003eForm T2054\u003c/span\u003e and \u003cspan\u003esection 2101\u003c/span\u003e of the Regulations describes the documents that are required to be filed with the election, including a certified copy of a resolution of the directors, or of an authorization of a person or persons legally entitled to administer the affairs of the corporation, to make the election and a schedule showing the computation of the amount of the CDA immediately before the election. \u003cspan\u003eSchedule 89\u003c/span\u003e \u003cspan\u003e(Form T2SCH89)\u003c/span\u003e, may be used for the purpose of making this calculation. The election must be made in respect of the full amount of the dividend that is to be paid. Subject to exceptions described \u003cspan\u003ein ¶\u003ca href=\"#p1_90\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.90\u003c/a\u003e\u003c/span\u003e \u003cspan\u003eto 1.92\u003c/span\u003e, no part of the elected dividend is included in computing \u003cspan\u003ePart \u003c/span\u003eI income of a shareholder resident in Canada. Also, no amount is deducted in computing the adjusted cost base of the shares on which the dividend is paid. However, the receipt of a dividend on a share in respect of which an election was made under \u003cspan\u003esubsection 83(2)\u003c/span\u003e may reduce a loss on the disposition of the share. In this regard, reference may be made to \u003cspan\u003esubsections 112(3)\u003c/span\u003e, \u003cspan\u003e(3.1), (3.2)\u003c/span\u003e \u003cspan\u003eand (3.3)\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.18\u003c/strong\u003e Capital dividends paid to \u003cspan\u003enon-residents\u003c/span\u003e are subject to\u003cspan\u003e non-resident \u003c/span\u003ewithholding tax \u003cspan\u003eof 25%\u003c/span\u003e under \u003cspan\u003esubsection 212(2)\u003c/span\u003e. The withholding tax rate may be reduced if the dividend is paid to a person that is resident in a country that has a tax treaty with Canada.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.19\u003c/strong\u003e An election to pay a capital dividend should be filed on \u003cspan\u003eForm T2054\u003c/span\u003e by the earlier of:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe day on which the dividend becomes payable; and\u003c/li\u003e\n\u003cli\u003ethe first day on which any part of the dividend is paid.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eFor this purpose, a dividend becomes payable on the day stipulated by the resolution of the directors of the corporation declaring the dividend. Because an election must be made on the full amount of the dividend, this means it may not specify that the dividend is payable partly from the corporation’s CDA and partly from another source.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.20\u003c/strong\u003e The definition of \u003cstrong\u003eshareholder\u003c/strong\u003e in \u003cspan\u003esubsection 248(1)\u003c/span\u003e includes a “person entitled to receive payment of a dividend”. This could be relevant where a dividend, in respect of which an election is to be made under \u003cspan\u003esubsection 83(2)\u003c/span\u003e, is declared to be payable by a corporation on a particular payment date to shareholders of record at the end of an earlier specified date. Provided the corporation elects to have the provisions of \u003cspan\u003esubsection 83(2)\u003c/span\u003e apply to the full amount of the dividend, a person that was a shareholder of record at the end of the earlier specified date will be entitled to the treatment given to a dividend to which \u003cspan\u003esubsection 83(2)\u003c/span\u003e applies even if they no longer own the share(s) on the date of payment.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003csection\u003e\n \u003cheader\u003e\n \u003ch5 id=\"example-1\"\u003eExample 1\u003c/h5\u003e\n \u003c/header\u003e\n\n \u003cdiv\u003e\n \u003cp\u003eOn \u003cspan\u003eDay 1\u003c/span\u003e a corporation declares a dividend payable on \u003cspan\u003eDay 4\u003c/span\u003e to all shareholders of record at the end of \u003cspan\u003eDay 2\u003c/span\u003e. Marc owns shares of the corporation at the end of \u003cspan\u003eDay 2\u003c/span\u003e and disposes of those shares on \u003cspan\u003eDay 3\u003c/span\u003e. On \u003cspan\u003eDay 4\u003c/span\u003e he does not own any shares of the corporation. On \u003cspan\u003eDay 4\u003c/span\u003e, when the corporation’s CDA balance is greater than the full amount of the dividend, the corporation files \u003cspan\u003eForm T2054\u003c/span\u003e to elect that the full amount of the dividend is a capital dividend and pays the dividend to Marc. Although Marc does not own any shares of the corporation on\u003cspan\u003e Day 4\u003c/span\u003e when the dividend is paid, Marc will be considered to have received a capital dividend.\u003c/p\u003e\n\n\n \u003c/div\u003e\n\n \n\n \n \u003c/section\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"late-filed-elections\"\u003eLate-filed elections\u003c/h4\u003e\n\u003cp id=\"p1_21\"\u003e\u003cstrong\u003e1.21\u003c/strong\u003e Subject to the comments in ¶1.23, \u003cspan\u003esubsection 83(3)\u003c/span\u003e and \u003cspan\u003eRegulation 2101(e)\u003c/span\u003e permit making a \u003cspan\u003elate-filed\u003c/span\u003e capital dividend election that would otherwise qualify as a valid election if filed as required \u003cspan\u003eby ¶1.19,\u003c/span\u003e provided that:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe election is made in the prescribed form and manner \u003cspan\u003e(see ¶\u003ca href=\"#p1_17\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.17\u003c/a\u003e);\u003c/span\u003e\n\u003c/li\u003e\n\u003cli\u003ethe estimated late filing penalty for the election is paid when the election is made; and\u003c/li\u003e\n\u003cli\u003ethe directors or other person or persons legally entitled to administer the affairs of the corporation have, before the time the election is made, authorized the election to be made.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003e1.22\u003c/strong\u003e The estimated late filing penalty is calculated as follows:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe lesser of $41.67 or 1/12 \u003cspan\u003eof 1%\u003c/span\u003e of the amount of the dividend\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003emultiplied by\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe number of months and \u003cspan\u003epart-months\u003c/span\u003e between the filing due date described \u003cspan\u003ein ¶1.19\u003c/span\u003e and the actual date the election is filed.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003e1.23\u003c/strong\u003e The late filing provisions described \u003cspan\u003ein ¶1.21\u003c/span\u003e cease to be available for a particular dividend if a taxpayer does not comply with a written request from the Minister to make a \u003cspan\u003elate-filed\u003c/span\u003e election for that dividend \u003cspan\u003ewithin 90 days\u003c/span\u003e from the date of service of the request.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch3 id=\"capital-dividend-account-components\"\u003eCapital dividend account – components\u003c/h3\u003e\n\u003ch4 id=\"general-discussion-of-the-cda-balance-determination\"\u003eGeneral discussion of the CDA balance determination\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.24\u003c/strong\u003e The term \u003cstrong\u003ecapital dividend account\u003c/strong\u003e is defined in \u003cspan\u003esubsection 89(1)\u003c/span\u003e. The definition contains the general rules for determining the CDA balance at any particular time. The various components that are added to or deducted from the CDA balance are specified in \u003cspan\u003eparagraphs (a)\u003c/span\u003e \u003cspan\u003e– (g)\u003c/span\u003e of the definition.\u003c/p\u003e\n\u003cp id=\"p1_25\"\u003e\u003cstrong\u003e1.25\u003c/strong\u003e The amount of each component of the CDA (for example, the \u003cspan\u003enon-taxable\u003c/span\u003e portion of net capital gains) is calculated on a cumulative basis for a particular period.\u003c/p\u003e\n\u003cp id=\"p1_26\"\u003e\u003cstrong\u003e1.26\u003c/strong\u003e The \u003cstrong\u003eperiod\u003c/strong\u003e referred to \u003cspan\u003ein ¶1.25\u003c/span\u003e starts at the beginning of the corporation’s first \u003cspan\u003etax year\u003c/span\u003e that began after the corporation last became a private corporation and that ended \u003cspan\u003eafter 1971\u003c/span\u003e. The period ends immediately before the balance of the CDA is to be determined.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003csection\u003e\n \u003cheader\u003e\n \u003ch5 id=\"example-2\"\u003eExample 2\u003c/h5\u003e\n \u003c/header\u003e\n\n \u003cdiv\u003e\n \u003cp\u003eCorporation X has been a private corporation with a \u003cspan\u003eMarch 31\u003c/span\u003e \u003cspan\u003eyear-end\u003c/span\u003e since it was incorporated \u003cspan\u003ein 1960\u003c/span\u003e. The corporation pays a capital dividend on \u003cspan\u003eApril 1, 2016\u003c/span\u003e. In this case, the relevant period for the calculation of the corporation’s CDA is \u003cspan\u003eApril 1, 1971\u003c/span\u003e to the time immediately before payment of the dividend on \u003cspan\u003eApril 1, 2016\u003c/span\u003e.\u003c/p\u003e\n\n\n \u003c/div\u003e\n\n \n\n \n \u003c/section\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"cda-component-1-non-taxable-portion-of-capital-gains\"\u003eCDA Component 1 – non-taxable portion of capital gains\u003c/h4\u003e\n\u003cp id=\"p1_27\"\u003e\u003cstrong\u003e1.27\u003c/strong\u003e Paragraph (a) of the definition of CDA describes the first component of the account. In general terms, it consists of the \u003cspan\u003enon-taxable\u003c/span\u003e portion of capital gains in excess of the \u003cspan\u003enon-deductible\u003c/span\u003e portion of capital losses (including business investment losses) realized by a corporation in the relevant period. The actual calculation is, subject to certain adjustments, based on the excess of capital gains over taxable capital gains, so that the result is the \u003cspan\u003enon-taxable\u003c/span\u003e portion of such capital gains. Similarly, and subject to certain adjustments, the excess of capital losses over allowable capital losses, being the \u003cspan\u003enon-deductible\u003c/span\u003e portion of such capital losses, reduces the \u003cspan\u003enon-taxable\u003c/span\u003e portion of its capital gains that are otherwise added to the corporation’s CDA.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.28\u003c/strong\u003e The amount included in a corporation’s CDA as the \u003cspan\u003enon-taxable\u003c/span\u003e portion of a capital gain or \u003cspan\u003enon-deductible\u003c/span\u003e portion of a capital loss will not be adjusted if the Act is subsequently amended to change the portion of a capital gain or loss that is \u003cspan\u003enon-taxable\u003c/span\u003e or \u003cspan\u003enon-deductible\u003c/span\u003e. For example, the \u003cspan\u003e25%\u003c/span\u003e \u003cspan\u003enon-taxable\u003c/span\u003e portion of a capital gain included in a corporation’s CDA in a \u003cspan\u003etax year\u003c/span\u003e that ended \u003cspan\u003ein 1999\u003c/span\u003e is not later changed because the \u003cspan\u003enon-taxable\u003c/span\u003e portion increased to \u003cspan\u003e50%\u003c/span\u003e of a capital gain for dispositions made after \u003cspan\u003eOctober 17, 2000\u003c/span\u003e.\u003c/p\u003e\n\u003ch5 id=\"capital-gains-specific-comments\"\u003eCapital gains – specific comments\u003c/h5\u003e\n\u003cp\u003e\u003cstrong\u003e1.29\u003c/strong\u003e Subject to ¶1.30 and \u003cspan\u003e¶1.30.1,\u003c/span\u003e the capital gains referred to \u003cspan\u003ein ¶1.27\u003c/span\u003e do not include the portion of capital gains that arise on the disposition of shares that is attributable to an increase to the cost of the shares that was denied by either of \u003cspan\u003esubclause 52(3)(a)(ii)(A)(II)\u003c/span\u003e or \u003cspan\u003esubparagraph 53(1)(b)(ii)\u003c/span\u003e. Capital losses may be similarly increased. The denied increase in cost under those \u003cspan\u003epreviously-mentioned\u003c/span\u003e provisions is included in the cost or adjusted cost base of the particular share(s) solely for the purpose of calculating a capital gain or capital loss to determine the amount, if any, to be added to the corporation’s CDA.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.30\u003c/strong\u003e Where a deduction under \u003cspan\u003esubsection 112(1)\u003c/span\u003e is permitted on a dividend that results from an increase in \u003cspan\u003epaid-up\u003c/span\u003e capital, \u003cspan\u003esubparagraph 53(1)(b)(ii)\u003c/span\u003e prevents what may be described as the \u003cstrong\u003e\u003cspan\u003enon-safe\u003c/span\u003e income\u003c/strong\u003e portion of the dividend being added to the cost of the share on which the dividend was received. However, when such dividend is subject to the application of \u003cspan\u003esubsection 55(2)\u003c/span\u003e, it is considered that a deduction under \u003cspan\u003esubsection 112(1)\u003c/span\u003e was not permitted in respect of that dividend and there is no denied increase in cost under \u003cspan\u003esubparagraph 53(1)(b)(ii)\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.30.1\u003c/strong\u003e Where a dividend that is deductible under \u003cspan\u003esubsection 112(1)\u003c/span\u003e results from the receipt of a stock dividend, \u003cspan\u003esubclause 52(3)(a)(ii)(A)(II)\u003c/span\u003e prevents what may be described as the \u003cstrong\u003enon-safe income\u003c/strong\u003e portion of the dividend being added to the cost of the stock dividend share. However, where the stock dividend is subject to the application of \u003cspan\u003esubsection 55(2)\u003c/span\u003e, the CRA is of the view that the denied cost under \u003cspan\u003esubclause 52(3)(a)(ii)(A)(II)\u003c/span\u003e is not included in the cost of the stock dividend share for the purpose of calculating a capital gain or capital loss to determine the amount, if any, to be added to the corporation’s CDA, as described \u003cspan\u003ein ¶1.29\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.31\u003c/strong\u003e The non-safe income portion of a dividend is that which exceeds the portion attributable to income that has been earned or realized by any corporation \u003cspan\u003eafter 1971\u003c/span\u003e, commonly known as \u003cstrong\u003esafe income\u003c/strong\u003e, that could reasonably be considered to contribute to the unrealized capital gain on the share on which the dividend was received.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.31.1\u003c/strong\u003e An amount deemed to be a gain under \u003cspan\u003eparagraph 55(2)(c)\u003c/span\u003e is deemed to be realized on a disposition of a capital property at the time of the payment of the dividend for purposes of calculation of the CDA.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.32\u003c/strong\u003e The capital gains and capital losses referred to \u003cspan\u003ein ¶\u003ca href=\"#p1_27\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.27\u003c/a\u003e\u003c/span\u003e do not include certain capital gains and capital losses that, pursuant to \u003cspan\u003eparagraph 40(3.1)(a)\u003c/span\u003e and \u003cspan\u003esubsection 40(3.12)\u003c/span\u003e, arise from the deemed disposition of a member’s interest as:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ea limited partner; or\u003c/li\u003e\n\u003cli\u003ea specified member of a partnership.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003e1.33\u003c/strong\u003e The CDA will take into account the \u003cspan\u003enon-taxable\u003c/span\u003e portion of capital gains and the \u003cspan\u003enon-deductible\u003c/span\u003e portion of capital losses that result from the making of gifts. For gifts made after \u003cspan\u003eDecember 8, 1997\u003c/span\u003e, the amounts taken into account are limited to those from gifts described in \u003cspan\u003esubsection 110.1(1)\u003c/span\u003e, such as from a gift to a registered charity.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.34\u003c/strong\u003e For certain gifts, the entire capital gain is non-taxable. For example, for gifts of certain listed securities to qualified donees, \u003cspan\u003eparagraph 38(a.1)\u003c/span\u003e deems the taxable amount of a capital gain to be zero so that the \u003cspan\u003enon-taxable\u003c/span\u003e portion will be the full amount of the capital gain. Provided certain conditions are satisfied, the same treatment applies if the capital gain is from the disposition of certain shares in exchange for such securities and the securities are then gifted not more than \u003cspan\u003e30 days\u003c/span\u003e after the exchange.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.35\u003c/strong\u003e A special rule applies if the gifted security (or share disposed of in exchange for such security) is a property described in \u003cspan\u003eparagraph 38(a.1)\u003c/span\u003e that is included in a \u003cspan\u003eflow-through\u003c/span\u003e share class of property. Applicable to such gifts or dispositions made on or after \u003cspan\u003eMarch 22, 2011\u003c/span\u003e, the amount added to the CDA on account of the gifted security or exchanged share will be reduced. The reduction is equal to the taxable portion of a separate amount that is deemed by \u003cspan\u003esubsection 40(12)\u003c/span\u003e to be a capital gain in respect of the gifted security or exchanged share but which is not, itself, otherwise included in the calculation of the corporation’s CDA.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.36\u003c/strong\u003e The amount determined in Component 1 does not include the portion of capital gains or losses on property disposed of after \u003cspan\u003eNovember 12, 1981\u003c/span\u003e that can reasonably be considered to have accrued during a period when the property, or another property for which it was substituted, was held by a corporation that was not:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ea private corporation;\u003c/li\u003e\n\u003cli\u003ean investment corporation;\u003c/li\u003e\n\u003cli\u003ea mortgage investment corporation; or\u003c/li\u003e\n\u003cli\u003ea mutual fund corporation.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eThis restriction does not apply to \u003cstrong\u003edesignated property\u003c/strong\u003e, which is defined in \u003cspan\u003esubsection 89(1)\u003c/span\u003e and generally refers to property acquired before \u003cspan\u003eNovember 13, 1981\u003c/span\u003e.\u003c/p\u003e\n\u003cp id=\"p1_37\"\u003e\u003cstrong\u003e1.37\u003c/strong\u003e For dispositions occurring after \u003cspan\u003eNovember 26, 1987\u003c/span\u003e, another amount is excluded from \u003cspan\u003eComponent 1\u003c/span\u003e. That amount is the portion of capital gains or losses on property that can reasonably be considered to have accrued during any period that it, or property for which it was substituted, was held by a corporation that was:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003econtrolled, directly or indirectly in any manner whatever, by one or more \u003cspan\u003enon-resident\u003c/span\u003e persons if, after \u003cspan\u003eNovember 26, 1987\u003c/span\u003e, the property became the property of a CCPC, otherwise than because of a change in the residence of one or more of the corporation’s shareholders; or\u003c/li\u003e\n\u003cli\u003eexempt from tax under \u003cspan\u003ePart I\u003c/span\u003e if, after \u003cspan\u003eNovember 26, 1987\u003c/span\u003e, the property became the property of a private corporation that was not exempt from tax under \u003cspan\u003ePart I\u003c/span\u003e.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eAs a result, these exclusions apply where the status of the corporation changes after \u003cspan\u003eNovember 26, 1987\u003c/span\u003e. The exclusions also apply if the property is acquired after \u003cspan\u003eNovember 26, 1987\u003c/span\u003e on a rollover basis by the CCPC or the private corporation that was not exempt from tax, as the case may be.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.38\u003c/strong\u003e Where a \u003cstrong\u003ecommercial obligation\u003c/strong\u003e issued by a corporation is settled in a \u003cspan\u003etax year\u003c/span\u003e, the \u003cspan\u003enon-taxable\u003c/span\u003e portion of a capital gain that may be deemed to have been realized by the corporation for the year pursuant to \u003cspan\u003esubsection 80(12)\u003c/span\u003e will be included in its CDA. The term commercial obligation is defined in \u003cspan\u003esubsection 80(1)\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.39\u003c/strong\u003e Capital gains included in the foreign accrual property income of a foreign affiliate of a corporation cannot be added to the corporation’s CDA.\u003c/p\u003e\n\u003cp id=\"p1_40\"\u003e\u003cstrong\u003e1.40\u003c/strong\u003e The calculation of the non-taxable portion of a capital gain for the purposes of \u003cspan\u003eComponent 1\u003c/span\u003e of the CDA at any time in the year takes into consideration any amount deducted as a reserve at the corporation’s \u003cspan\u003eyear-end\u003c/span\u003e pursuant to \u003cspan\u003esubparagraph 40(1)(a)(iii)\u003c/span\u003e in respect of proceeds of disposition of a property that are payable to the corporation after that \u003cspan\u003eyear-end\u003c/span\u003e. Payment of a capital dividend during a \u003cspan\u003etax year\u003c/span\u003e that is based on a calculation which overstates the actual balance in the CDA, because of an \u003cspan\u003eunder-estimation\u003c/span\u003e of the amount of the reserve to be deducted at the \u003cspan\u003eyear-end\u003c/span\u003e, may give rise to an assessment of \u003cspan\u003ePart III\u003c/span\u003e tax.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.41\u003c/strong\u003e The reduction to a corporation’s CDA balance in respect of a \u003cspan\u003esubparagraph 40(1)(a)(iii)\u003c/span\u003e reserve that was deducted at the end of a particular \u003cspan\u003etax year\u003c/span\u003e is added back to calculate the CDA balance on the first day of the next \u003cspan\u003etax year\u003c/span\u003e. The calculation of that next year’s CDA balance should then be reduced by an amount in respect of any such reserve that may be deducted at the end of that next \u003cspan\u003etax year\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.42\u003c/strong\u003e Where a private corporation is a member of a partnership that realizes a capital gain, the relevant amounts in respect of the gain that are allocated to the corporate partner will be included in the calculation of its CDA at the end of the fiscal period of the partnership that ends in the corporation’s \u003cspan\u003etax year\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.43\u003c/strong\u003e Pursuant to paragraph 34.2(5)(b), a corporation’s CDA is not affected by any amounts arising from the application of \u003cspan\u003esection 34.2\u003c/span\u003e. \u003cspan\u003eSection 34.2\u003c/span\u003e provides rules that adjust a corporate partner’s income to limit the deferral of tax where the partnership has a fiscal period that differs from the corporation’s \u003cspan\u003etax year\u003c/span\u003e. It also provides rules for transitional relief.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.43.1\u003c/strong\u003e Subparagraph (a)(i.1) of the definition of CDA applies when a corporate beneficiary of a trust receives a distribution in respect of capital gains of the trust after \u003cspan\u003eSeptember 15, 2016.\u003c/span\u003e In general terms, at the end of the trust’s tax year in which the amount is distributed there will be added to \u003cspan\u003eComponent 1\u003c/span\u003e of the corporation’s CDA the lesser of:\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003ethe portion of the amount distributed to the corporation in respect of capital gains of the trust that exceeds the amount designated under \u003cspan\u003esubsection 104(21)\u003c/span\u003e by the trust in respect of net taxable capital gains of the trust attributable to those capital gains, and\u003c/li\u003e\n\u003cli\u003ethe non-taxable portion of the capital gains attributable to the net taxable capital gains included in the designated amount referred to \u003cspan\u003ein ¶1.43.1(a).\u003c/span\u003e\n\u003c/li\u003e\n\u003c/ol\u003e\n\u003cp\u003e\u003cstrong\u003e1.43.2\u003c/strong\u003e For distributions from a trust on or before \u003cspan\u003eSeptember 15, 2016,\u003c/span\u003e such amounts were generally added to the corporation’s CDA as a separate component so that they were not subject to reduction by the non-deductible portion of capital losses described \u003cspan\u003ein ¶1.45.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.44\u003c/strong\u003e Allowable capital losses forming all or part of a corporation’s net capital losses may not be deductible pursuant to \u003cspan\u003esubsection 111(4)\u003c/span\u003e because control of the corporation was acquired by a person or group of persons. However, the capital losses from which the allowable capital losses are derived will be included in the calculation of, and reduce \u003cspan\u003eComponent 1\u003c/span\u003e of the corporation’s CDA.\u003c/p\u003e\n\u003ch5 id=\"excess-capital-losses\"\u003eExcess capital losses\u003c/h5\u003e\n\u003cp id=\"p1_45\"\u003e\u003cstrong\u003e1.45\u003c/strong\u003e As indicated in ¶\u003ca href=\"#p1_27\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.27\u003c/a\u003e, the first component of the CDA is the excess of the \u003cspan\u003enon-taxable\u003c/span\u003e portion of capital gains over the \u003cspan\u003enon-deductible\u003c/span\u003e portion of capital losses realized by the corporation over the relevant period. When a capital loss is realized, the amount of the first component added to the corporation’s CDA is reduced. However, a negative balance in that component is not carried over to the computation of the CDA balance itself. This means that it does not reduce the aggregate amount of the other components included in the corporation’s CDA (described below). Instead, no amount in respect of the first component will be recognized as an addition to the corporation’s CDA until the running balance of the first component is once again a positive amount.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003csection\u003e\n \u003cheader\u003e\n \u003ch6 id=\"example-3\"\u003eExample 3\u003c/h6\u003e\n \u003c/header\u003e\n\n \u003cdiv\u003e\n \n\n \n \u003cp\u003eCorporation Y has been a private corporation since incorporation \u003cspan\u003ein 1971\u003c/span\u003e. The corporation:\u003c/p\u003e \u003cul\u003e \n \u003cli\u003esustained a capital loss of $15,000 in its 2008 \u003cspan\u003etax year\u003c/span\u003e (the \u003cspan\u003enon-deductible\u003c/span\u003e portion of \u003cspan\u003e \u003cstrong\u003e$7,500\u003c/strong\u003e \u003c/span\u003e is included in the calculation of \u003cspan\u003eComponent 1\u003c/span\u003e)\u003c/li\u003e \n \u003cli\u003erealized a capital gain of $10,000 in its 2011 \u003cspan\u003etax year\u003c/span\u003e (the \u003cspan\u003enon-taxable\u003c/span\u003e portion of \u003cspan\u003e \u003cstrong\u003e$5,000\u003c/strong\u003e \u003c/span\u003e is included in the calculation of \u003cspan\u003eComponent 1\u003c/span\u003e)\u003c/li\u003e \n \u003cli\u003ereceived a capital dividend of \u003cspan\u003e \u003cstrong\u003e$1,000\u003c/strong\u003e \u003c/span\u003e in its 2014 \u003cspan\u003etax year\u003c/span\u003e (representing \u003cspan\u003eComponent 2\u003c/span\u003e - see ¶1.46)\u003c/li\u003e \n\u003c/ul\u003e \u003cp\u003eNo other components are relevant for the purposes of calculating the corporation’s CDA.\u003c/p\u003e \u003cp\u003e\u003cstrong\u003eDiscussion\u003c/strong\u003e \u003c/p\u003e \u003cp\u003eAt the end of the corporation’s 2014 tax year, \u003cspan\u003eComponent 1\u003c/span\u003e had a negative balance of $2,500 \u003cspan\u003e($5,000\u003c/span\u003e \u003cspan\u003e- $7,500)\u003c/span\u003e. However, the amount added to the CDA in respect of \u003cspan\u003eComponent 1\u003c/span\u003e was \u003cspan\u003e$0\u003c/span\u003e. \u003c/p\u003e \u003cp\u003eTherefore, the balance in the CDA at the end of the 2014 \u003cspan\u003etax year\u003c/span\u003e, representing the total of \u003cspan\u003eComponent 1\u003c/span\u003e and \u003cspan\u003eComponent 2\u003c/span\u003e, was $1,000.\u003c/p\u003e \u003cp\u003eThe $2,500 negative balance of Component 1, being the excess of the \u003cspan\u003enon-deductible\u003c/span\u003e portion of capital losses over the \u003cspan\u003enon-taxable\u003c/span\u003e portion of capital gains, must be absorbed by the \u003cspan\u003enon-taxable\u003c/span\u003e portion of additional capital gains realized after the 2014\u003cspan\u003e tax year\u003c/span\u003e before any amount in respect of capital gains may be added to the CDA in respect of \u003cspan\u003eComponent 1\u003c/span\u003e.\u003c/p\u003e \n \n\n\n\u003c/div\u003e\n\n \n\n \n \u003c/section\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"cda-component-2-capital-dividends-received-by-the-corporation\"\u003eCDA Component 2 – capital dividends received by the corporation\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.46\u003c/strong\u003e Paragraph (b) of the definition of CDA includes in that account a dividend received from another corporation that made an election under \u003cspan\u003esubsection 83(2)\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.47\u003c/strong\u003e The amount normally added to the CDA is the full amount of a dividend received in respect of which the payor corporation made a capital dividend election under \u003cspan\u003esubsection 83(2)\u003c/span\u003e. This is so even if the amount of the dividend exceeded the payor corporation’s CDA balance immediately before the dividend became payable. In other words, even an excessive dividend is included in the recipient corporation’s CDA. However, if the payor corporation makes an \u003ca href=\"#p1_90\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eelection under subsection 184(3)\u003c/a\u003e in respect of the excessive dividend, the amount added to the recipient corporation’s CDA will be limited to the portion of the dividend that continues to be excluded from the recipient corporation’s income under \u003cspan\u003esubsection 83(2)\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.48\u003c/strong\u003e Subparagraph 53(1)(e)(ii) provides that the adjusted cost base of a corporate partner’s interest in a partnership is increased by that partner’s share of a capital dividend received by the partnership.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.49\u003c/strong\u003e Where a corporate partner is a private corporation, its CDA may include its share of a capital dividend received by the partnership. The time of the inclusion is normally determined by the terms of the applicable partnership agreement. For example, if the partnership agreement provides that a particular corporate partner is entitled to a share of a capital dividend at the time the dividend is received by the partnership, the partner would add its share of the dividend to its CDA at that time. However, if the partnership agreement provides that a capital dividend received by the partnership is to be shared by the members of the partnership at the end of the partnership’s fiscal period, a particular corporate partner would only be permitted to add its share of the dividend to its CDA at the end of that fiscal period.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"cda-component-3-eligible-capital-amounts\"\u003eCDA Component 3 – eligible capital amounts\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.50\u003c/strong\u003e As of \u003cspan\u003eJanuary 1, 2017,\u003c/span\u003e the rules respecting eligible capital property in \u003cspan\u003esection 14\u003c/span\u003e were repealed and replaced by \u003cspan\u003eClass 14.1\u003c/span\u003e of \u003cspan\u003eSchedule II\u003c/span\u003e to the Regulations. Property of a taxpayer that was eligible capital property of the taxpayer immediately before \u003cspan\u003eJanuary 1, 2017\u003c/span\u003e and that was owned by the taxpayer at the beginning of that day is added to the depreciable property of the taxpayer included in \u003cspan\u003eClass 14.1.\u003c/span\u003e Gains from the disposition of property that was formerly eligible capital property that are realized on or after \u003cspan\u003eJanuary 1, 2017\u003c/span\u003e will no longer be added to the corporation’s CDA under \u003cspan\u003eComponent 3.\u003c/span\u003e Going forward, generally, the \u003cspan\u003enon-taxable\u003c/span\u003e portion of capital gains realized on the disposition of a capital property, including a depreciable property under \u003cspan\u003eClass 14.1,\u003c/span\u003e is added to \u003cspan\u003eComponent 1\u003c/span\u003e of the corporation’s CDA \u003cspan\u003ein ¶1.27.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.50.1\u003c/strong\u003e The comments \u003cspan\u003ein ¶1.50.2\u003c/span\u003e \u003cspan\u003eto 1.58\u003c/span\u003e apply to \u003cspan\u003eComponent 3\u003c/span\u003e of the CDA. They are generally relevant to tax years ending before \u003cspan\u003eJanuary 1, 2017\u003c/span\u003e to which the eligible capital property rules under former \u003cspan\u003esection 14\u003c/span\u003e and transitional rules under \u003cspan\u003esection 13\u003c/span\u003e are applicable.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.50.2\u003c/strong\u003e Paragraphs (c), (c.1) and (c.2) of the definition of CDA effectively include in that account the notional \u003cspan\u003enon-taxable\u003c/span\u003e portion of gains resulting from the disposition of eligible capital property in respect of each business of the corporation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.51\u003c/strong\u003e The separate paragraphs referred to \u003cspan\u003ein ¶1.50.2\u003c/span\u003e are generally a result of the taxable portion of capital gains having changed twice in the \u003cspan\u003eyear 2000\u003c/span\u003e. Consequently, they separately describe gains that were realized in a \u003cspan\u003etax year\u003c/span\u003e included in the period that:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003efor paragraph (c), ended on or before \u003cspan\u003eFebruary 27, 2000\u003c/span\u003e;\u003c/li\u003e\n\u003cli\u003efor paragraph (c.1), ended after \u003cspan\u003eFebruary 27, 2000\u003c/span\u003e and on or before \u003cspan\u003eOctober 17, 2000\u003c/span\u003e; and\u003c/li\u003e\n\u003cli\u003efor paragraph (c.2), ends after \u003cspan\u003eOctober 17, 2000.\u003c/span\u003e\n\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003e1.52\u003c/strong\u003e The amount included in \u003cspan\u003eComponent 3\u003c/span\u003e of a corporation’s CDA may be reduced where, pursuant to \u003cspan\u003esubsection 20(4.2)\u003c/span\u003e or \u003cspan\u003eformer 20(4.3)\u003c/span\u003e, the corporation deducted an amount as a bad debt, or was deemed to have an allowable capital loss as a result of a bad debt, in respect of an amount the corporation was entitled to receive on the disposition of an eligible capital property.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.53\u003c/strong\u003e The provisions relating to amounts in respect of eligible capital property that, prior to the legislative amendments repealing the eligible capital property regime, were to be included in a corporation’s CDA under \u003cspan\u003eComponent 3\u003c/span\u003e were complex and were subject to many changes after they were first introduced. As a result, reference should be made to the provisions of the Act that applied at the time(s) relevant to the calculation being made.\u003c/p\u003e\n\u003cp id=\"p1_54\"\u003e\u003cstrong\u003e1.54\u003c/strong\u003e For tax years ending after \u003cspan\u003eFebruary 27, 2000\u003c/span\u003e and before \u003cspan\u003eJanuary 1, 2017,\u003c/span\u003e an amount in respect of the \u003cspan\u003enon-taxable\u003c/span\u003e portion of a gain from the disposition of an eligible capital property may only be added to the corporation’s CDA at the end of the corporation’s \u003cspan\u003etax year\u003c/span\u003e in which the property was disposed of. It was only at that time that former \u003cspan\u003eparagraph 14(1)(b)\u003c/span\u003e recognized the gain in the computation of the corporation’s income. As a result, an election to pay a capital dividend based on a gain from the disposition of eligible capital property could only be made after the end of the particular \u003cspan\u003etax year\u003c/span\u003e in which the gain was realized. Subject to certain conditions, a transitional rule also allowed a taxpayer to elect under \u003cspan\u003esubparagraph 13(38)(d)(iii)\u003c/span\u003e to have former \u003cspan\u003eparagraph 14(1)(b)\u003c/span\u003e apply to certain gains from the disposition of eligible capital property on or before \u003cspan\u003eDecember 31, 2016\u003c/span\u003e but in a tax year that ended after that date.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.55\u003c/strong\u003e If a private corporation was a member of a partnership, the amount allocated to the corporation as its share of an amount included in the partnership’s income from a business for a particular fiscal period pursuant to former \u003cspan\u003eparagraph 14(1)(b)\u003c/span\u003e would be added to the corporation’s CDA at the end of the partnership’s fiscal period, rather than the corporation’s tax \u003cspan\u003eyear-end.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.56\u003c/strong\u003e An eligible capital property disposed of by a corporation could be one in respect of which an election could be made under former \u003cspan\u003esubsection 14(1.01)\u003c/span\u003e to treat the disposition as a sale of capital property. In that case, the addition to the corporation’s CDA would take place at the time the election was made. The election could be made in the corporation’s tax return for the \u003cspan\u003etax year\u003c/span\u003e in which the property was disposed of or together with a capital dividend election (\u003cspan\u003eForm T2054\u003c/span\u003e) that was filed on or before the corporation’s filing due date for the tax year in which the property was disposed of. Similar treatment was available under former \u003cspan\u003esubsection 14(1.02)\u003c/span\u003e in respect of certain property acquired \u003cspan\u003ebefore 1972\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.57\u003c/strong\u003e The election under former \u003cspan\u003esubsection 14(1.01)\u003c/span\u003e \u003cspan\u003eor (1.02)\u003c/span\u003e could be made in the form of a note attached to \u003cspan\u003eForm T2054\u003c/span\u003e or in the applicable income tax return stating that the corporation was electing under \u003cspan\u003eformer subsection 14(1.01)\u003c/span\u003e \u003cspan\u003eor (1.02)\u003c/span\u003e, as the case may be.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.58\u003c/strong\u003e Property that was not eligible for an election under former \u003cspan\u003esubsection 14(1.01)\u003c/span\u003e \u003cspan\u003eor (1.02)\u003c/span\u003e was:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003egoodwill;\u003c/li\u003e\n\u003cli\u003eproperty in respect of which the corporation’s actual proceeds of the disposition did not exceed its eligible capital expenditure to acquire the property;\u003c/li\u003e\n\u003cli\u003eproperty in respect of which the corporation’s eligible capital expenditure to acquire the property could not be determined; and\u003c/li\u003e\n\u003cli\u003eeligible capital property that, pursuant to \u003cspan\u003esubsection 85(1)\u003c/span\u003e \u003cspan\u003eor (2)\u003c/span\u003e, was acquired by the corporation at an elected amount less than the fair market value of the property and that was acquired from a transferor with whom the corporation did not deal at \u003cspan\u003earm’s length\u003c/span\u003e and whose eligible capital expenditure to acquire the property could not be determined.\u003c/li\u003e\n\u003c/ul\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"cda-component-4-life-insurance-policy-proceeds\"\u003eCDA Component 4 – life insurance policy proceeds\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.59\u003c/strong\u003e Paragraph (d) of the definition of a corporation’s CDA includes in that account, as \u003cspan\u003eComponent 4,\u003c/span\u003e amounts related to proceeds of a life insurance policy received as a consequence of the death of a person.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.60\u003c/strong\u003e The amount included in the CDA is the amount by which the total of the amounts described in \u003cspan\u003eA\u003c/span\u003e \u003cspan\u003eand B\u003c/span\u003e \u003cspan\u003eexceeds C\u003c/span\u003e (the excess amount is referred to in this Chapter as the \u003cstrong\u003enet proceeds\u003c/strong\u003e) where:\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eA:\u003c/strong\u003e under subparagraph (d)(i) of the definition of CDA, is the proceeds of each life insurance policy received in the period and \u003cspan\u003eafter 1971\u003c/span\u003e in consequence of the death of any person where the corporation was a beneficiary or policyholder under the policy on or before \u003cspan\u003eJune 28, 1982\u003c/span\u003e;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eB:\u003c/strong\u003e under subparagraph (d)(ii) of the definition of CDA, is the proceeds of each life insurance policy received in the period and on or after \u003cspan\u003eMay 24, 1985\u003c/span\u003e in consequence of the death of any person where the corporation was a beneficiary or policyholder under the policy after \u003cspan\u003eJune 28, 1982\u003c/span\u003e and was not such a beneficiary or policyholder on or before that date; and\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eC:\u003c/strong\u003e is the total of all amounts described \u003cspan\u003ein ¶1.60.1\u003c/span\u003e \u003cspan\u003eto 1.60.5.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.60.1\u003c/strong\u003e The first amount in respect of each such policy, is described in \u003cspan\u003esubparagraph (d)(iii)\u003c/span\u003e of the definition of CDA. It is the adjusted cost basis (defined in \u003cspan\u003esubsection 148(9)),\u003c/span\u003e immediately before the death, of a policyholder’s interest in the policy, whether or not the corporation was the policyholder. If the death occurred prior to \u003cspan\u003eMarch 22, 2016,\u003c/span\u003e the amount is the adjusted cost basis of the policy to the corporation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.60.2\u003c/strong\u003e The second amount, described in \u003cspan\u003esubparagraph (d)(iv)\u003c/span\u003e of the definition of CDA, relates to a \u003cstrong\u003e10/8 policy\u003c/strong\u003e. If the life insurance policy is a \u003cstrong\u003e10/8 policy\u003c/strong\u003e, as defined in \u003cspan\u003esubsection 248(1),\u003c/span\u003e the amount added to a corporation’s CDA under \u003cspan\u003eelement A\u003c/span\u003e \u003cspan\u003eor B\u003c/span\u003e as described \u003cspan\u003ein ¶1.60\u003c/span\u003e in consequence of the death of a person \u003cspan\u003eafter 2013\u003c/span\u003e may be reduced. The reduction is equal to the amount outstanding immediately before the death that, under the terms of a borrowing, is or may become payable to a person or partnership that was assigned an interest in the policy or in an investment account in respect of the policy.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.60.3\u003c/strong\u003e The third and fourth amounts, described in \u003cspan\u003esubparagraphs (d)(v)\u003c/span\u003e \u003cspan\u003eand (vi)\u003c/span\u003e of the definition of CDA, apply where all of the following conditions are met:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe proceeds of the particular life insurance policy were received in consequence of the death of a person after \u003cspan\u003eMarch 21, 2016,\u003c/span\u003e\n\u003c/li\u003e\n\u003cli\u003eafter 1999 but before \u003cspan\u003eMarch 22, 2016,\u003c/span\u003e an interest in the policy was disposed of by a policyholder that was not a taxable Canadian corporation, and\u003c/li\u003e\n\u003cli\u003esubsection 148(7) applied to the disposition (the interest was disposed of by way of a gift, by distribution from a corporation or by operation of law only to any person, or in any manner whatever to any person with whom the policyholder was not dealing at arm's length).\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003e1.60.4\u003c/strong\u003e Where all of the conditions \u003cspan\u003ein ¶1.60.3\u003c/span\u003e are met, the amount otherwise added to the CDA of a corporation in consequence of a person’s death is reduced under \u003cspan\u003esubparagraph (d)(v)\u003c/span\u003e. Generally, the reduction under \u003cspan\u003eclause (d)(v)(A)\u003c/span\u003e is the amount by which the fair market value of the consideration given in respect of the disposition of the policy exceeded the greater of the value of the interest in the policy (generally, the cash surrender value) and the adjusted cost basis of the policy to the policyholder immediately before the disposition. Adjustments to the amount of the reduction under \u003cspan\u003esubparagraph (d)(v)\u003c/span\u003e may be required by \u003cspan\u003esubclause (d)(v)(A)(II)\u003c/span\u003e and \u003cspan\u003eclause (d)(v)(B),\u003c/span\u003e together with \u003cspan\u003eparagraphs 148(7)(c)\u003c/span\u003e \u003cspan\u003eand (f),\u003c/span\u003e where the paid-up capital of a corporation was increased in connection with any such disposition, depending on whether any portion of that increase was extracted before \u003cspan\u003eMarch 22, 2016.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.60.5\u003c/strong\u003e Where all of the conditions \u003cspan\u003ein ¶1.60.3\u003c/span\u003e are met, another reduction to the CDA may be required by \u003cspan\u003esubparagraph (d)(vi)\u003c/span\u003e where, generally, the adjusted cost basis of the interest in the policy to the policyholder immediately before the disposition exceeded the value of the interest in the policy at the time of the disposition.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.61\u003c/strong\u003e Where a private corporation became a beneficiary or policyholder under a life insurance policy after \u003cspan\u003eJune 28, 1982\u003c/span\u003e, the net proceeds of a life insurance policy received before \u003cspan\u003eMay 24, 1985\u003c/span\u003e were included in the corporation’s life insurance capital dividend account. The corporation could elect to pay \u003cspan\u003etax-free\u003c/span\u003e life insurance capital dividends from that account. If the corporation paid those dividends to another private corporation before \u003cspan\u003eMay 24, 1985\u003c/span\u003e, they would be included in the recipient corporation’s life insurance capital dividend account.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.62\u003c/strong\u003e The balance, if any, in a corporation’s life insurance capital dividend account immediately before \u003cspan\u003eMay 24, 1985\u003c/span\u003e was added to that corporation’s CDA pursuant to \u003cspan\u003eparagraph (e)\u003c/span\u003e of the definition of CDA.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.63\u003c/strong\u003e A corporation’s CDA is not increased by any amount it receives in a \u003cspan\u003etax year\u003c/span\u003e as proceeds of a leveraged insurance annuity policy, defined in \u003cspan\u003esubsection 248(1)\u003c/span\u003e as an \u003cspan\u003e\u003cstrong\u003eLIA policy\u003c/strong\u003e\u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.64\u003c/strong\u003e This paragraph has been deleted. (see the \u003ca href=\"https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c1-capital-dividends/chapter-history-s3-f2-c1-capital-dividends.html\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eChapter History\u003c/a\u003e entry)\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.65\u003c/strong\u003e Subparagraph 53(1)(e)(iii) provides that the adjusted cost base of a corporate partner’s interest in a partnership is increased by that partner’s share of the amount of the net proceeds of a life insurance policy received by the partnership. Where the corporate partner is a private corporation, its share of the net proceeds may be included in its CDA at the time of receipt of the proceeds by the partnership. For more information, \u003cspan\u003esee ¶1, 7,\u003c/span\u003e \u003cspan\u003eand 8\u003c/span\u003e of \u003ca href=\"https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it430r3-consolid/archived-life-insurance-proceeds-received-a-private-corporation-a-partnership-a-consequence-death.html\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eInterpretation \u003cspan\u003eBulletin IT-430R3\u003c/span\u003e (Consolidated) – Life Insurance Proceeds Received by a Private Corporation or a Partnership as a Consequence of Death\u003c/a\u003e.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch5 id=\"life-insurance-policies-used-as-security\"\u003eLife insurance policies used as security\u003c/h5\u003e\n\u003cp id=\"p1_66\"\u003e\u003cstrong\u003e1.66\u003c/strong\u003e A life insurance policy may be used to secure the indebtedness of a private corporation debtor (the debtor) with part or all of the proceeds arising upon the death of the person whose life was insured being paid directly to the creditor. When this occurs, the legal relationships between the debtor, the creditor and the insurer will determine whether the debtor is entitled to add the net proceeds to its CDA.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.67\u003c/strong\u003e If the life insurance policy has been assigned as collateral for securing indebtedness (as opposed to an absolute assignment of the policy) or is the subject of a hypothecary claim by the creditor, and the debtor remains entitled to the proceeds as beneficiary or policyholder, the net proceeds of the policy would be included in the debtor’s CDA. In such cases, the proceeds of the insurance policy would be constructively received by the debtor in its capacity as beneficiary or policyholder even if paid directly to the creditor in accordance with the assignment or hypothec. The creditor is neither the beneficiary of the policy nor the policyholder and would not be entitled to include the proceeds in its CDA because the amount it receives would not be considered to be proceeds of a life insurance policy.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.68\u003c/strong\u003e Effective October 27, 2010, life insurance proceeds paid directly to a creditor financial institution may be added to the debtor’s CDA, if:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe life insurance proceeds are paid directly to the financial institution as either\u003cul\u003e\n\u003cli\u003epolicyholder of a creditor’s group life insurance policy; or\u003c/li\u003e\n\u003cli\u003ebeneficiary of a life insurance policy owned by the debtor as policyholder; and\u003c/li\u003e\n\u003c/ul\u003e\n\u003c/li\u003e\n\u003cli\u003epursuant to a contractual obligation, the life insurance proceeds are required to be applied (and are applied) in reduction of the debt of the debtor to the financial institution with any monies in excess of such debt being paid over to the debtor.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003e\u003cstrong\u003e1.69\u003c/strong\u003e Where a death benefit is paid pursuant to a creditor’s group life insurance policy, the CRA will permit the full amount of the death benefit (as opposed to the net proceeds) to be added to the debtor’s CDA provided the policy is a term and \u003cspan\u003enon-participating\u003c/span\u003e policy with no cash surrender value, designed to pay the outstanding balance of the debtor’s debt upon death of the life insured.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.70\u003c/strong\u003e Where a death benefit is paid pursuant to a life insurance policy owned by the debtor as policyholder, only the net proceeds may be added to the debtor’s CDA.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.71\u003c/strong\u003e The treatment of the CDA of debtor and creditor corporations in other situations where life insurance proceeds are paid directly to a creditor of a debtor corporation and applied by the creditor to reduce a debt of the debtor corporation will be determined on a \u003cspan\u003ecase-by-case\u003c/span\u003e basis after reviewing all of the relevant legal documents and surrounding circumstances.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.72\u003c/strong\u003e The principles described \u003cspan\u003ein ¶\u003ca href=\"#p1_66\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.66\u003c/a\u003e\u003c/span\u003e \u003cspan\u003eto 1.71\u003c/span\u003e will apply to determine the amount that may be added to the CDA of a private corporation in respect of the proceeds of a life insurance policy used to secure the indebtedness of a partnership of which the corporation is a member.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"cda-component-5-trust-distributions\"\u003eCDA Component 5 – trust distributions\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.73\u003c/strong\u003e This paragraph has been deleted. (see the \u003ca href=\"https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c1-capital-dividends/chapter-history-s3-f2-c1-capital-dividends.html\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eChapter History\u003c/a\u003e entry)\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.74\u003c/strong\u003e Paragraph (g) of the definition of a corporation’s CDA includes in that account a dividend that was received by the trust in respect of which an election was made under \u003cspan\u003esubsection 83(2)\u003c/span\u003e and which the trust, in turn, distributed to the corporation. However, the dividend must be part of a distribution from the trust to the corporate beneficiary in the year it is received by the trust and an appropriate designation pursuant to \u003cspan\u003esubsection 104(20)\u003c/span\u003e must be made. The addition to the CDA is equal to the lesser of the amount of the distribution and the amount designated under \u003cspan\u003esubsection 104(20)\u003c/span\u003e in respect of the corporation in respect of the particular dividend.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.75\u003c/strong\u003e The amount referred to \u003cspan\u003ein ¶1.74\u003c/span\u003e that is distributed by a trust to a corporation will be included in the corporation’s CDA at the end of the trust’s \u003cspan\u003etax year\u003c/span\u003e in which the amount is distributed.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"cda-component-6-capital-dividends-payable\"\u003eCDA Component 6 – capital dividends payable\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.76\u003c/strong\u003e Pursuant to the closing words of the definition in \u003cspan\u003esubsection 89(1)\u003c/span\u003e, a corporation’s CDA is reduced by the total amount of capital dividends payable by the corporation in the period.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.77\u003c/strong\u003e Although a separate component of a corporation’s CDA might have a positive balance at a particular time, the CDA considered as a whole will not have a positive balance at that time if the total amount of all capital dividends payable in the relevant period ending at that time (\u003cspan\u003esee ¶\u003ca href=\"#p1_25\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.25\u003c/a\u003e\u003c/span\u003e \u003cspan\u003eand ¶1.26\u003c/span\u003e) is equal to or greater than the total amount of all the components added to the corporation’s CDA in that period.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003csection\u003e\n \u003cheader\u003e\n \u003ch5 id=\"example-4\"\u003eExample 4\u003c/h5\u003e\n \u003c/header\u003e\n\n \u003cdiv\u003e\n \n\n \n \u003cp\u003eIn year 1 Corporation Z realizes a capital gain of \u003cstrong\u003e\u003cspan\u003e$200,000\u003c/span\u003e \u003c/strong\u003e, of which \u003cspan\u003e\u003cstrong\u003e$100,000\u003c/strong\u003e\u003c/span\u003e represents the \u003cspan\u003enon-taxable\u003c/span\u003e portion. Later in that year a dividend of \u003cspan\u003e\u003cstrong\u003e$100,000\u003c/strong\u003e\u003c/span\u003e becomes payable by the corporation from the CDA.\u003c/p\u003e\n\u003cp\u003eIn year 2 Corporation Z realizes a capital loss of \u003cstrong\u003e\u003cspan\u003e$100,000\u003c/span\u003e\u003c/strong\u003e of which \u003cspan\u003e$50,000\u003c/span\u003e represents the \u003cspan\u003enon-deductible\u003c/span\u003e portion.\u003c/p\u003e\n\u003cp\u003eIn year 3 Corporation Z receives net proceeds of a life insurance policy in the amount of \u003cspan\u003e\u003cstrong\u003e$100,000\u003c/strong\u003e \u003c/span\u003e.\u003c/p\u003e\n\u003cp\u003eThe amount that Corporation Z could pay from the CDA immediately after receipt of the life insurance proceeds would be calculated as follows:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003eComponent 1 adds $50,000 to the balance, being the \u003cspan\u003enon-taxable\u003c/span\u003e portion of the capital gain realized in \u003cspan\u003eyear 1\u003c/span\u003e minus the \u003cspan\u003enon-deductible\u003c/span\u003e portion of a capital loss in \u003cspan\u003eyear 2\u003c/span\u003e \u003cspan\u003e($100,000\u003c/span\u003e \u003cspan\u003e- $50,000\u003c/span\u003e);\u003c/li\u003e\n\u003cli\u003eComponent 4 adds \u003cspan\u003e$100,000\u003c/span\u003e to the balance, being the net life insurance proceeds realized in \u003cspan\u003eyear 3\u003c/span\u003e; and\u003c/li\u003e\n\u003cli\u003eComponent 6 reduces the balance by \u003cspan\u003e$100,000\u003c/span\u003e, being the capital dividends that were payable in \u003cspan\u003eyear 1\u003c/span\u003e.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eAs a result, Corporation Z’s CDA balance is \u003cspan\u003e$50,000\u003c/span\u003e.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\n \n\n \n \u003c/section\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch3 id=\"special-rules\"\u003eSpecial rules\u003c/h3\u003e\n\u003ch4 id=\"amalgamation-or-winding-up\"\u003eAmalgamation or winding-up\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.78\u003c/strong\u003e A corporation’s CDA may be increased or reduced as a result of an amalgamation of two or more predecessor corporations to form a new corporation. The CDA may also be increased or decreased as a result of a \u003cspan\u003ewinding-up\u003c/span\u003e of a subsidiary corporation into its parent corporation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.79\u003c/strong\u003e Paragraph 87(2)(z.1) provides for the transfer of a predecessor corporation’s CDA to the new corporation on an amalgamation by deeming the amalgamated corporation to be the same corporation as, and a continuation of, each predecessor corporation. As a result, each component of each predecessor corporation’s CDA will be included in the calculation of the CDA of the amalgamated corporation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.80\u003c/strong\u003e Similarly, if a subsidiary corporation described in \u003cspan\u003esubsection 88(1)\u003c/span\u003e is wound up, the \u003cspan\u003ecross-reference\u003c/span\u003e to \u003cspan\u003eparagraph 87(2)(z.1)\u003c/span\u003e in \u003cspan\u003eparagraph 88(1)(e.2)\u003c/span\u003e results in each component of the wound up subsidiary corporation’s CDA being included in the calculation of the parent corporation’s CDA.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003csection\u003e\n \u003cheader\u003e\n \u003ch3 id=\"example-5\"\u003eExample 5\u003c/h3\u003e\n \u003c/header\u003e\n\n \u003cdiv\u003e\n \n\n \n \u003cp\u003e\u003cstrong\u003eCorporation A:\u003c/strong\u003e \u003c/p\u003e \u003cul\u003e \n \u003cli\u003erealized a capital gain of $100,000 in its 2005 tax year, of which the \u003cspan\u003enon-taxable\u003c/span\u003e portion, \u003cstrong\u003e$50,000\u003c/strong\u003e, was added to its CDA; and\u003c/li\u003e \n \u003cli\u003eas a result of the disposition of an eligible capital property in its 2012 \u003cspan\u003etax year\u003c/span\u003e, included the amount of \u003cstrong\u003e$25,000\u003c/strong\u003e in its income pursuant to \u003cspan\u003eparagraph 14(1)(b)\u003c/span\u003e and added that amount to its CDA.\u003c/li\u003e \n\u003c/ul\u003e \u003cp\u003e\u003cstrong\u003eCorporation B:\u003c/strong\u003e \u003c/p\u003e \u003cul\u003e \n \u003cli\u003erealized a capital loss of $150,000 in its 2010 \u003cspan\u003etax year\u003c/span\u003e, of which the \u003cspan\u003enon-deductible\u003c/span\u003e portion is \u003cstrong\u003e$75,000\u003c/strong\u003e; and\u003c/li\u003e \n \u003cli\u003eas a result of the receipt of life insurance proceeds in its 2011 \u003cspan\u003etax year\u003c/span\u003e, added the amount of \u003cstrong\u003e$40,000\u003c/strong\u003e to its CDA.\u003c/li\u003e \n\u003c/ul\u003e \u003cp\u003eCorporation A and Corporation B amalgamate \u003cspan\u003ein 2013\u003c/span\u003e to form Amalco.\u003c/p\u003e \u003cp\u003eAt the time of the amalgamation when the first tax year of Amalco begins, its CDA will be determined as follows:\u003c/p\u003e \u003cp\u003e\u003cstrong\u003eComponent 1\u003c/strong\u003e\u003cbr\u003e This component only takes into account any \u003cstrong\u003epositive balance\u003c/strong\u003e of the \u003cspan\u003enon-taxable\u003c/span\u003e portion of capital gains over the \u003cspan\u003enon-deductible\u003c/span\u003e portion of capital losses of the predecessor corporations.\u003c/p\u003e \u003cp\u003eThe non-taxable portion of the capital gain of Corporation A is $50,000.\u003c/p\u003e \u003cp\u003eThe non-deductible portion of the capital loss of Corporation B is $75,000.\u003c/p\u003e \u003cp\u003e$50,000 – $75,000 = –\u003cstrong\u003e \u003c/strong\u003e$25,000\u003c/p\u003e \u003cp\u003eComponent 1 = NIL (because Component 1 cannot be a negative amount)\u003c/p\u003e \u003cp\u003e\u003cstrong\u003eComponent 3\u003c/strong\u003e\u003cbr\u003e Amount included in income of Corporation A pursuant to \u003cspan\u003eparagraph 14(1)(b)\u003c/span\u003e (see ¶\u003ca href=\"#p1_54\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.54\u003c/a\u003e)\u003cbr\u003e Component 3 = $25,000\u003c/p\u003e \u003cp\u003e\u003cstrong\u003eComponent 4\u003c/strong\u003e\u003cbr\u003e Net proceeds of a life insurance policy received by \u003cspan\u003eCorporation B\u003c/span\u003e\u003cbr\u003e Component 4 = $40,000\u003c/p\u003e \u003cp\u003e\u003cstrong\u003eCalculation of CDA balance of Amalco:\u003c/strong\u003e\u003cbr\u003e Component 1 + Component 3 + Component 4 = $65,000\u003c/p\u003e \u003cp\u003eIn the first tax year after amalgamation, Amalco realizes a capital gain of $90,000, the \u003cspan\u003enon-taxable\u003c/span\u003e portion of which is $45,000. No other transactions relevant to the CDA calculation take place.  In this situation, $25,000 of the \u003cspan\u003enon-taxable\u003c/span\u003e portion of the capital gain must first be applied to extinguish the notional negative balance of the capital gain component of the CDA of Amalco (\u003cspan\u003eComponent 1\u003c/span\u003e of the CDA) before the remaining $20,000 can be applied to increase the CDA balance of Amalco. See ¶\u003ca href=\"#p1_45\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.45\u003c/a\u003e.\u003c/p\u003e \n \n\n\n\u003c/div\u003e\n\n \n\n \n \u003c/section\u003e\n\u003cdiv\u003e\n \n\n \n \u003cp\u003e\u003cstrong\u003e1.81\u003c/strong\u003e No portion of the CDA of a predecessor corporation will be transferred to an amalgamated corporation if the \u003ca href=\"#p1_94\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eanti-avoidance rule in subsection 83(2.1)\u003c/a\u003e would apply to deem a capital dividend paid by the predecessor corporation immediately before the amalgamation to be a taxable dividend. Similarly, no portion of the CDA of a subsidiary corporation will be transferred to its parent corporation if the \u003cspan\u003eanti-avoidance\u003c/span\u003e rule in \u003cspan\u003esubsection 83(2.1)\u003c/span\u003e would apply to deem a capital dividend paid by the subsidiary corporation immediately before the \u003cspan\u003ewinding-up\u003c/span\u003e to be a taxable dividend.\u003c/p\u003e \u003cp\u003e\u003cstrong\u003e1.82\u003c/strong\u003e Where subsection 88(2) applies to the \u003cspan\u003ewinding-up\u003c/span\u003e of a Canadian corporation, \u003cspan\u003esubparagraph 88(2)(b)(i)\u003c/span\u003e deems the portion of the dividend deemed to be paid on the \u003cspan\u003ewinding-up\u003c/span\u003e that does not exceed the corporation’s CDA immediately before that time to be the full amount of a separate dividend. The corporation may elect, under \u003cspan\u003esubsection 83(2)\u003c/span\u003e, that the separate dividend be deemed to be a capital dividend.\u003c/p\u003e \n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"payments-in-kind-and-deemed-dividend-payments\"\u003ePayments in kind and deemed dividend payments\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.83\u003c/strong\u003e A capital dividend may be paid in cash, stock, in kind or as a deemed dividend.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.84\u003c/strong\u003e A capital dividend election may be made in respect of a dividend that a purchaser corporation is deemed to pay pursuant to \u003cspan\u003eparagraph 84.1(1)(b)\u003c/span\u003e. However, in that case the dividend recipient must own shares of the purchaser corporation at the time the dividend is deemed to have been paid.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch3 id=\"excessive-elections\"\u003eExcessive elections\u003c/h3\u003e\n\u003ch4 id=\"overstatements\"\u003eOverstatements\u003c/h4\u003e\n\u003cp\u003e\u003cstrong\u003e1.85\u003c/strong\u003e An overstatement of the CDA can arise in a number of ways. Examples include:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ea corporation might pay a capital dividend based on a capital gain reported in a particular year. But if a replacement property is acquired, the application of \u003cspan\u003esection 44\u003c/span\u003e could retroactively reduce the previously reported capital gain.\u003c/li\u003e\n\u003cli\u003ewhere an option is exercised in a \u003cspan\u003etax year\u003c/span\u003e and an amended return is then filed to exclude the proceeds (reverse a previously reported capital gain that was relied upon to pay a capital dividend) from the granting of the option in a previous \u003cspan\u003etax year\u003c/span\u003e.\u003c/li\u003e\n\u003cli\u003ea corporation may claim a capital gains reserve at its \u003cspan\u003eyear-end\u003c/span\u003e that exceeds the estimated reserve used to calculate the corporation’s CDA balance earlier in the year when an election was made to pay a capital dividend. Reserves are discussed \u003cspan\u003eat ¶\u003ca href=\"#p1_40\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.40\u003c/a\u003e.\u003c/span\u003e\n\u003c/li\u003e\n\u003c/ul\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"additional-tax-on-excessive-elections\"\u003eAdditional tax on excessive elections\u003c/h4\u003e\n\u003cp id=\"p1_86\"\u003e\u003cstrong\u003e1.86\u003c/strong\u003e Where a corporation makes a capital dividend election or a \u003cspan\u003elate-filed\u003c/span\u003e capital dividend election, only the portion of the dividend that does not exceed the CDA balance immediately before the dividend becomes payable is deemed to be a capital dividend. However, even if some portion does not qualify as a capital dividend, the full amount of the dividend will be excluded from the income of a recipient shareholder resident in Canada.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.87\u003c/strong\u003e In that situation, the corporation is said to have made an \u003cstrong\u003eexcessive election\u003c/strong\u003e. The corporation will be subject to \u003cstrong\u003e\u003cspan\u003ePart III\u003c/span\u003e tax\u003c/strong\u003e under \u003cspan\u003esubsection 184(2)\u003c/span\u003e which is equal \u003cspan\u003eto 60%\u003c/span\u003e of the portion of the dividend that does not qualify as a capital dividend. The \u003cspan\u003enon-qualifying\u003c/span\u003e portion is referred to as the \u003cstrong\u003eexcess portion\u003c/strong\u003e.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.88\u003c/strong\u003e The liability for the \u003cspan\u003ePart III\u003c/span\u003e tax arises at the time that the excessive election is made under \u003cspan\u003esubsection 83(2)\u003c/span\u003e. Unless the tax is paid when the excessive election is filed, interest at prescribed rates is added for the period from the date of the excessive election to the date of payment of the tax.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.89\u003c/strong\u003e Under subsection 185(4), a person who has received a dividend in respect of which an excessive election has been made is jointly and severally, or solidarily, liable with the corporation for that person’s proportionate share of the \u003cspan\u003ePart III\u003c/span\u003e tax that becomes payable by the corporation. The person’s proportionate share is equivalent to the ratio that the amount of the dividend that the particular person receives is of the full amount of the dividend in respect of which the excessive election is made.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch4 id=\"election-to-avoid-additional-tax\"\u003eElection to avoid additional tax\u003c/h4\u003e\n\u003cp id=\"p1_90\"\u003e\u003cstrong\u003e1.90\u003c/strong\u003e As an alternative to the payment of \u003cspan\u003ePart III\u003c/span\u003e tax in respect of an excessive election, the corporation liable for the tax may make an election under \u003cspan\u003esubsection 184(3)\u003c/span\u003e to have such part of the excess portion of the dividend as it elects treated as a separate taxable dividend that became payable at the time the original dividend became payable.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.91\u003c/strong\u003e The subsection 184(3) election must be made in the manner prescribed in \u003cspan\u003esection 2106\u003c/span\u003e of the Regulations. It must be made on or before the \u003cspan\u003e90th day\u003c/span\u003e after the day of sending of a notice of assessment in respect of the \u003cspan\u003ePart III\u003c/span\u003e tax that would otherwise be payable. In addition, pursuant to \u003cspan\u003esubsection 184(4)\u003c/span\u003e, either:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003ethe election must be made no later than the day that is \u003cspan\u003e30 months\u003c/span\u003e after the day on which the original dividend became payable and with the concurrence of every shareholder entitled to any portion of the original dividend whose address was known to the corporation, or\u003c/li\u003e\n\u003cli\u003eall the shareholders who were entitled to the dividend must concur with the election, in which case, notwithstanding \u003cspan\u003esubsections 152(4)\u003c/span\u003e \u003cspan\u003eto (5)\u003c/span\u003e, such assessment of tax, interest and penalties payable by such shareholders for any \u003cspan\u003etax year\u003c/span\u003e may be made as is necessary to take the corporation’s election into account.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eIf, at the time each shareholder is deemed to have received a separate dividend pursuant to the \u003cspan\u003esubsection 184(3)\u003c/span\u003e election \u003cspan\u003e(see ¶1.92),\u003c/span\u003e each such shareholder is exempt from tax under \u003cspan\u003ePart I\u003c/span\u003e, no shareholder concurrence in the election is required. However, in that case the election must be made no later than the day that is \u003cspan\u003e30 months\u003c/span\u003e after the day on which the original dividend became payable.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.92\u003c/strong\u003e Where a valid subsection 184(3) election is made, each shareholder resident in Canada entitled to receive a proportionate share of the original dividend is deemed to have received, at the time that each separate dividend became payable, a share of each such separate dividend proportionate to the shareholder’s holdings of the particular class of shares at that time. The amount of each separate dividend deemed to be received by a \u003cspan\u003enon-resident\u003c/span\u003e shareholder is computed in the same manner. But for purposes of the \u003cspan\u003enon-resident\u003c/span\u003e tax under \u003cspan\u003esubsection 212(2)\u003c/span\u003e, a separate capital dividend or a separate taxable dividend is deemed to have been paid on the date of the \u003cspan\u003esubsection 184(3)\u003c/span\u003e election with the result that, where the original dividend is one described \u003cspan\u003ein ¶\u003ca href=\"#p1_17\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.17\u003c/a\u003e\u003c/span\u003e \u003cspan\u003eor ¶\u003ca href=\"#p1_21\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003e1.21\u003c/a\u003e,\u003c/span\u003e \u003cspan\u003esection 215\u003c/span\u003e will apply at that time if the original dividend had not been paid before that time.\u003c/p\u003e\n\u003ch5 id=\"subsection-1843-protective-election\"\u003eSubsection 184(3) protective election\u003c/h5\u003e\n\u003cp\u003e\u003cstrong\u003e1.93\u003c/strong\u003e Where a corporation has been assessed \u003cspan\u003ePart III\u003c/span\u003e tax in respect of an excessive election, the corporation may consider filing an objection to the determination of the CDA balance immediately before the dividend. It may also be permitted to file an election, in the time and manner required by \u003cspan\u003esubsection 184(3)\u003c/span\u003e \u003cspan\u003e(see ¶1.91),\u003c/span\u003e that will take effect if the objection is not successful. Under this arrangement, the CRA will hold the \u003cspan\u003esubsection 184(3)\u003c/span\u003e election in abeyance until the resolution of the corporation’s objection to the \u003cspan\u003ePart III\u003c/span\u003e tax assessment and any subsequent appeal to a court. If the corporation’s objection or subsequent appeal is ultimately allowed, the \u003cspan\u003esubsection 184(3)\u003c/span\u003e election will be withdrawn and treated as if it had never been made. If the corporation’s objection or ultimate appeal is dismissed, the \u003cspan\u003esubsection 184(3)\u003c/span\u003e election will be treated as having been made in a timely manner and as valid.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch3 id=\"anti-avoidance-rule\"\u003eAnti-avoidance rule\u003c/h3\u003e\n\u003cp id=\"p1_94\"\u003e\u003cstrong\u003e1.94\u003c/strong\u003e Subsection 83(2.1) is an \u003cspan\u003eanti-avoidance\u003c/span\u003e rule. It applies where a dividend that would otherwise be a capital dividend is paid on a share and the share (or another share for which the share was substituted) was acquired by the holder in a transaction or as part of a series of transactions that had the receipt of the dividend as one of its main purposes.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.95\u003c/strong\u003e In \u003ca href=\"http://canlii.ca/t/g1kp4\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eGroupe Honco Inc. v Canada\u003c/a\u003e, \u003cspan\u003e2013 FCA 128\u003c/span\u003e, \u003cspan\u003e2014 DTC\u003c/span\u003e \u003cspan\u003e5006 (FCA)\u003c/span\u003e, the Federal Court of Appeal confirmed that a person can have more than one main reason for the acquisition of shares. If \u003cspan\u003esubsection 83(2.1)\u003c/span\u003e is not to apply, it must be shown that none of those main reasons is the receipt of a capital dividend.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.96\u003c/strong\u003e Where subsection 83(2.1) applies, the dividend will be deemed to be received by the shareholder as a taxable dividend that will be included in the shareholder’s income. If the dividend recipient is a corporation it will not be included in computing that recipient corporation’s CDA. However, the amount elected for the purposes of \u003cspan\u003esubsection 83(2)\u003c/span\u003e will be a capital dividend for the purpose of determining any liability of the payor corporation for \u003cspan\u003ePart III\u003c/span\u003e tax in respect of an excessive election and for the purpose of computing the payor corporation’s CDA balance.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.97\u003c/strong\u003e Subsections 83(2.2) to (2.4) provide exceptions to the application of the \u003cspan\u003eanti-avoidance\u003c/span\u003e rule in \u003cspan\u003esubsection 83(2.1)\u003c/span\u003e:\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003eSubsection 83(2.2) provides that the \u003cspan\u003eanti-avoidance\u003c/span\u003e rule will not apply to a capital dividend \u003cstrong\u003epaid to an individual\u003c/strong\u003e if, immediately before the dividend became payable, all or substantially all of the payor corporation’s CDA consisted of amounts other than those described in \u003cspan\u003eparagraphs 83(2.2)(a)\u003c/span\u003e \u003cspan\u003eto (d)\u003c/span\u003e.\u003c/li\u003e\n\u003cli\u003eSubsection 83(2.3) provides that the \u003cspan\u003eanti-avoidance\u003c/span\u003e rule will not apply to capital dividends paid by a corporation where it is reasonable to consider that the purpose for paying the dividend was to distribute net life insurance proceeds which were received due to death.\u003c/li\u003e\n\u003cli\u003eSubsection 83(2.4) provides that the \u003cspan\u003eanti-avoidance\u003c/span\u003e rule will not apply to a capital dividend \u003cstrong\u003epaid to a related corporation\u003c/strong\u003e (determined as if \u003cspan\u003eparagraph 251(5)(b)\u003c/span\u003e did not apply) if all or substantially all of the payor corporation’s CDA consisted of amounts other than those described in \u003cspan\u003eparagraphs 83(2.4)(a)\u003c/span\u003e \u003cspan\u003eto (e)\u003c/span\u003e.\u003c/li\u003e\n\u003c/ol\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch2 id=\"application\"\u003eApplication\u003c/h2\u003e\n\u003cp\u003eThis updated chapter, which may be referenced as \u003cspan\u003eS3-F2-C1,\u003c/span\u003e is effective \u003cspan\u003eJuly 25, 2019.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003eWhen it was first published on \u003cspan\u003eDecember 16, 2016,\u003c/span\u003e this Chapter replaced and cancelled Interpretation \u003cspan\u003eBulletin IT-66R6,\u003c/span\u003e Capital Dividends.\u003c/p\u003e\n\u003cp\u003eThe history of updates to this Chapter as well as any technical updates from the cancelled interpretation bulletin can be viewed in the \u003ca href=\"https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c1-capital-dividends/chapter-history-s3-f2-c1-capital-dividends.html\" target=\"_blank\" style=\"color: rgb(95, 99, 104);\"\u003eChapter History\u003c/a\u003e page.\u003c/p\u003e\n\u003cp\u003eExcept as otherwise noted, all statutory references herein are references to the provisions of the Income Tax Act, \u003cspan\u003eR.S.C., 1985,\u003c/span\u003e \u003cspan\u003ec.1 (5th Supp.)\u003c/span\u003e, as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., \u003cspan\u003ec. 945\u003c/span\u003e, as amended.\u003c/p\u003e\n\u003cp\u003eLinks to jurisprudence are provided through CanLII.\u003c/p\u003e\n\u003cp\u003eIncome tax folios are available in electronic format only.\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\u003cdiv\u003e\n \n\n \n \u003ch2 id=\"reference\"\u003eReference\u003c/h2\u003e\n\u003cp\u003eSections 184 and 185, subsections 83(2) to (5), the definitions of \u003cstrong\u003ecapital dividend account\u003c/strong\u003e, \u003cstrong\u003edesignated property\u003c/strong\u003e and \u003cstrong\u003eprivate corporation\u003c/strong\u003e in \u003cspan\u003esubsection 89(1)\u003c/span\u003e, \u003cspan\u003esubsections 89(1.1)\u003c/span\u003e, 89(1.2) \u003cspan\u003eand 212(2)\u003c/span\u003e, \u003cspan\u003esections 2101\u003c/span\u003e \u003cspan\u003eand 2106\u003c/span\u003e of the Regulations and \u003cspan\u003eForm T2054\u003c/span\u003e (also \u003cspan\u003esections 13,\u003c/span\u003e 34.2, 54 \u003cspan\u003eand 215\u003c/span\u003e, \u003cspan\u003esubsections 14(1.01)\u003c/span\u003e \u003cspan\u003eand (1.02)\u003c/span\u003e, 20(4.2) \u003cspan\u003eand (4.3)\u003c/span\u003e, 40(3.1) \u003cspan\u003eand (3.12)\u003c/span\u003e, 40(12), 55(2), \u003cspan\u003e80(1) and (12)\u003c/span\u003e, \u003cspan\u003e104(20) and (21),\u003c/span\u003e 110.1(1), 111(4), \u003cspan\u003e112(1) and (3)\u003c/span\u003e, 125(7), 148(7), 248(1) \u003cspan\u003eand 256(5.1)\u003c/span\u003e, \u003cspan\u003eparagraphs 14(1)(b)\u003c/span\u003e, 38(a.1) \u003cspan\u003eto (a.3)\u003c/span\u003e, 39(1)(a), 40(1)(a), 53(1)(e), 84.1(1)(b), 87(1)(z.1) \u003cspan\u003eand 88(2)(e.2)\u003c/span\u003e, \u003cspan\u003esubparagraph 53(1)(b)(ii)\u003c/span\u003e, \u003cspan\u003esubclause 52(3)(a)(ii)(A)(II)\u003c/span\u003e and \u003cspan\u003eClass 14.1\u003c/span\u003e of \u003cspan\u003eSchedule II\u003c/span\u003e to the Regulations).\u003c/p\u003e\n\n \n\n\n\u003c/div\u003e\n\n\u003c/div\u003e\u003c/div\u003e\u003c/div\u003e\n \u003c/body\u003e\u003c/html\u003e\n","hash_id":"qmq3qUsde3bD","author":"Canada Revenue Agency","reading_time":"56 min read","link_sharing":true,"archived":false,"favourited":false,"folder_id":6661,"tag_list":[]}