Finance Proposes Amendment to Capital Dividend Account Definition

On September 16, 2016, the Department of Finance released proposed amendments to the Income Tax Act (Canada). Contained in that package is a proposed amendment to the definition of “capital dividend account” (CDA) in subsection 89(1), which is part of a mechanism for allowing capital gains to flow-through a private corporation without attracting an extra level of tax.

The non-taxable portions of capital gains realized by a private corporation are added to the corporation’s CDA, but reduced by the non-allowable portions of the corporation’s realized capital losses. Similarly, under the current legislation, non-taxable portions of capital gains distributed from a trust to a private corporation may be added to the corporation’s CDA; however, this amount is not reduced by the non-allowable portion of the corporation’s realized capital losses. Effective in respect of trust distributions made on or after the date of the announcement, Finance proposes to reduce the amount added to the corporation’s CDA for distributions from a trust by the non-allowable portion of the corporation’s realized capital losses.

View the proposed amendments here: http://www.fin.gc.ca/drleg-apl/2016/ita-lir-0916-eng.asp

Prepared by: Kyle Lamothe

Kyle is an associate at the Toronto office of Thorsteinssons. Kyle’s practice focuses on domestic and international tax planning for individuals, trusts, and corporations, including succession and estate planning, reorganizations, business structuring and representing taxpayers who have disputes with the… more »

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