{"id":1564,"date":"2021-01-15T16:08:02","date_gmt":"2021-01-15T16:08:02","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/rosedalefamilyoffice\/?p=1564"},"modified":"2021-04-21T18:28:30","modified_gmt":"2021-04-21T18:28:30","slug":"whats-in-your-capital-dividend-account-and-why-should-you-care","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/rosedalefamilyoffice\/blog\/2021\/01\/15\/whats-in-your-capital-dividend-account-and-why-should-you-care\/","title":{"rendered":"What\u2019s in Your Capital Dividend Account and Why Should You Care?"},"content":{"rendered":"

So you run your own business, things have been going well, but the more your business grows, the more complex your tax issues become. One often misunderstood tax concept is the\u00a0Capital Dividend Account<\/em>, or \u201cCDA\u201d for short.<\/p>\n

Capital dividends<\/em>\u00a0are simply a form of dividend, which can be paid out to Canadian-resident shareholders on a tax-free basis. The critical caveat is that the amount of the capital dividend must not exceed the balance in the corporation\u2019s CDA.<\/p>\n

<\/h2>\n

What is the CDA?<\/strong><\/h2>\n

What exactly is the CDA then you ask? Good question. The CDA is a \u201cnotional\u201d account that is calculated by you and your accountant, and can be verified with the CRA.<\/p>\n

Notional\u00a0meaning that it is not a literal account that you transfer funds in and out of (i.e., not like a bank account), but rather a cumulative calculation that \u201ctracks\u201d the CDA balance over time, and thus allows you to know the amount of capital dividends your corporation may pay out tax-free to its shareholder(s) at any point in time.<\/p>\n

What Comprises the CDA Balance?\u00a0<\/strong><\/h2>\n

<\/h2>\n

The technical definition of the CDA is exceptionally complex. Below is a simplified summary of this calculation to understand the mechanics of the CDA.<\/p>\n

Capital Dividend Account (\u201cCDA\u201d) =<\/em><\/p>\n