On December 16, 2016, CRA released Folio S3-F2-C1, Capital Dividends. It included a number of updates to the previous guidance (IT-66R6, Capital Dividends) and additional information. Some additions and information include:
- the entire non-taxable portion of a capital gain (e.g. 100% when the inclusion rate is reduced to zero) that results from the making of certain gifts (such as the gifting of certain publicly traded securities to a qualified donee) is added to the capital dividend account (Paragraphs 1.33 and 1.34);
- when a capital dividend is received by a partnership, the timing on the inclusion of a corporate partner’s CDA will depend on the partnership agreement (Paragraph 1.49); and
- a description of the administrative policy which may allow a corporation to object to an assessment of Part III Tax in respect of an excessive capital dividend election while, at the same time, electing to treat the excess dividend as a separate taxable dividend (Subsection 184(3)). In these cases, CRA will hold the Subsection 184(3) election in abeyance until the resolution of the objection or subsequent appeal to a court (Paragraph 1.93).
For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 427