What is a CDA?

The Capital Dividend Account (CDA) is a notional corporate tax account maintained by Canadian private corporations. It tracks tax-free amounts accumulated by the corporation, which can be distributed to shareholders as tax-free capital dividends.

How the CDA Accumulates

The most common addition to the CDA is the non-taxable portion of a capital gain. When a corporation sells an asset for a profit, only half of that gain is taxable. The other half is added to the CDA. Other additions include proceeds from a life insurance policy and capital dividends received from another corporation.

Filing Requirements

Paying a capital dividend requires filing a specific election with the Canada Revenue Agency (CRA) prior to the dividend payment date. Errors in calculating the CDA balance or failing to file the election result in severe financial penalties.