Capital Dividend Account Balance Calculator
The CDA is the only way to move money out of a corporation with no tax at all. Work out the balance, the tax-free dividend you can declare today, the T2054 deadline, and the seventy-five percent penalty if you elect on more than the account holds.
payable tax free
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How the Balance Is Built
| Component | Basis | Amount |
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The Election and the Deadline
| Requirement | What Has to Happen |
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Electing on More Than the Balance
| Item | Basis | Amount |
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The Same Money Paid Three Ways
| Route | Personal Tax Rate | Tax | Net to the Shareholder |
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Points That Decide This
What to Do Next
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Disclaimer: The capital dividend account is available only to a private corporation resident in Canada. The account is a cumulative balance from the date the corporation last became a private corporation, not an annual figure. The main components are the non-taxable portion of capital gains net of the non-allowable portion of capital losses, the proceeds of a life insurance policy received by the corporation as a consequence of death in excess of the adjusted cost basis of the policy, capital dividends received from other corporations, and the non-taxable portion of gains on eligible capital property under the pre-2017 rules. Dispositions of goodwill after 2016 fall within Class 14.1 and produce a capital gain, half of which credits the account. The election is made on Form T2054 with a certified copy of the directors’ resolution and Schedule 89, and must be filed on or before the earlier of the day the dividend becomes payable and the first day any part of it is paid. An election on an amount exceeding the balance attracts Part III tax at 75% of the excess, which can be avoided where the corporation and its shareholders elect under subsection 184(3) to treat the excess as a separate taxable dividend. Personal tax is applied at the Ontario top marginal rates of 47.74% on non-eligible dividends and 39.34% on eligible dividends. This page is general information, not tax advice.
The CDA Is the Only Genuinely Tax-Free Route Out
Every other way of taking money out of a corporation is taxed in the shareholder’s hands. Salary is employment income, dividends are taxed at the dividend rates, and a shareholder loan has to be repaid. A capital dividend is received tax free, in full, with nothing to report on the personal return.
| Taking $200,000 Out | Personal Tax | Net to the Shareholder |
|---|---|---|
| Capital dividend | Nil | $200,000 |
| Eligible dividend | $78,680 | $121,320 |
| Non-eligible dividend | $95,480 | $104,520 |
On $200,000 the difference between a capital dividend and a non-eligible dividend is $95,480 in the shareholder’s pocket. That is the whole reason the account is worth tracking properly, and the reason so many corporations discover a balance they never used only when the business is being wound up.
What Goes Into the Account
The account is cumulative from the date the corporation last became a private corporation. It is not an annual figure and it does not reset.
- The non-taxable half of capital gains, net of the non-allowable half of capital losses. Losses reduce the account whether or not they were ever claimed against gains.
- Life insurance proceeds received on death, in excess of the adjusted cost basis of the policy, where the corporation is the beneficiary.
- Capital dividends received from another corporation.
- The non-taxable portion of gains on eligible capital property under the rules that applied before 2017.
- Less all capital dividends already paid, which is the line most often missed on a file that has changed accountants.
The account can go negative and it stays negative. A corporation that realised a large capital loss has a negative running balance that future gains have to fill before anything is payable. Please do not assume a gain this year creates a payable balance, because the calculation looks at everything since incorporation.
Life Insurance Is the Largest Single Credit on Most Files
Where a corporation owns a policy on the life of a shareholder and is the beneficiary, the death benefit is received tax free by the corporation and credits the CDA in full, less the adjusted cost basis of the policy. On a term policy the adjusted cost basis is usually small, so almost the entire benefit passes through.
| Death Benefit | Adjusted Cost Basis | CDA Credit |
|---|---|---|
| $1,000,000 | $0 | $1,000,000 |
| $1,000,000 | $85,000 | $915,000 |
| $2,000,000 | $240,000 | $1,760,000 |
On a permanent policy the adjusted cost basis builds and then declines over time, so the credit is not the face amount and the insurer should be asked for the figure rather than it being estimated.
The Deadline Is the Declaration, Not the Filing Season
Form T2054 must be filed on or before the earlier of the day the dividend becomes payable and the first day any part of it is paid. It is not filed with the T2 and it does not follow the corporate year end.
That means the sequence has to be right. The directors’ resolution declares the dividend payable on a stated date, the balance is verified before that date, the T2054 and Schedule 89 go in, and only then does the money move.
Paying the money first and filing the election afterwards is the most common way this goes wrong. A late election can be accepted with a penalty under subsection 83(3.1), calculated on the amount of the dividend, but it depends on the CRA accepting it and it is entirely avoidable.
Electing on Too Much Costs Seventy-Five Percent
If the election exceeds the balance, Part III tax applies at seventy-five percent of the excess. That is a penalty rate, deliberately set high enough that nobody treats the account as an estimate.
| Excess Elected | Part III Tax at 75% | With a 184(3) Election |
|---|---|---|
| $50,000 | $37,500 | Treated as a taxable dividend |
| $100,000 | $75,000 | Treated as a taxable dividend |
| $250,000 | $187,500 | Treated as a taxable dividend |
Subsection 184(3) allows the corporation and its shareholders to elect to treat the excess as a separate taxable dividend instead, which removes the Part III tax. It requires the concurrence of every shareholder who received the dividend, so it is straightforward in an owner-managed corporation and difficult where the shareholders have since fallen out.
The way to avoid all of this is to verify the balance before declaring, not after. Requesting the CRA’s own CDA balance confirmation before a large election takes time but removes the argument entirely, and on a significant dividend it is worth the wait.
When to Actually Use the Balance
- After selling a property or an investment portfolio inside the corporation
- After a business sale, where the goodwill gain creates a large credit
- On the death of a shareholder, where insurance proceeds fund the buyout of the estate’s shares
- Before a wind-up, since the account disappears with the corporation
- Before the corporation ceases to be private, which ends the account entirely
- Before future capital losses erode a balance that is available today
A positive balance sitting unused is money the family may never receive. Our tax planning service covers the balance reconstruction, the resolution, Schedule 89 and the T2054 filing.
Frequently Asked Questions
Common questions on the capital dividend account.
Related Calculators and Guides
More tools for owner-managed corporations.
Verify the Balance Before You Declare the Dividend
Send us the corporate history, the gain and loss schedules and any insurance details. We will reconstruct the account from incorporation, prepare Schedule 89, draft the directors’ resolution and file the T2054 in the right order.