Capital Dividend Account

Plain meaning

A notional private-corporation account that can allow certain tax-free capital amounts to be paid to Canadian-resident shareholders as capital dividends.

Also called

Key points

• The CDA is not a bank account; it is a tax account tracking specified tax-free surpluses inside a private corporation.
• Common additions can include the non-taxable portion of capital gains and certain life-insurance proceeds, subject to detailed rules.
• A corporation generally must file an election to pay a capital dividend.
• Over-electing can trigger penalty tax, so the CDA balance must be calculated carefully before payment.
• Capital dividends are generally received tax-free by Canadian-resident shareholders when the rules are met.

Why it comes up

The capital dividend account matters in private-company planning, insurance proceeds, capital gains, estate planning, and post-sale distributions.