9 June 1989 Internal T.I. 73899 F - Capital Dividend Elections

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Subject:  Capital Dividend Elections Subsection 83(2) of the Income Tax Act (the "Act") - Form T2054

This is in reply to your memorandum dated May 9, 1989 with respect to the above-noted subject matter.

It is our view that a capital dividend account ("CDA") cannot be a negative amount not only at the time immediately prior to the time at which a capital dividend became payable but also immediately after that time.  Pursuant to paragraph 89(1)(b) of the Act, the amount of the CDA is computed by subtracting the aggregate of all capital dividends that became payable before the particular time.  Capital dividend has the meaning assigned by subsections 248(1) and 83(2) of the Act.  Pursuant to paragraph 83(2)(a) of the Act, the full amount of the dividend elected upon shall be deemed to be a capital dividend to the extent of the CDA immediately before the particular time.  Consequently, the amount of the capital dividend that would be subtracted from the CDA is at the maximum the amount of the CDA.  Hence, the CDA immediately after the capital dividend cannot be a negative amount.  As a result, no "negative CDA" can be carried forward notwithstanding that the CDA is calculated on a cumulative basis commencing from the first day of the first taxation year commencing after the time a corporation last became a private corporation and ending after 1971 to the particular time.  Therefore, the amount by which the full amount of the dividend elected upon exceeds the portion thereof that is deemed by subsection 83(2) to be a capital dividend would be subject to tax under Part III of the Act.

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