8 June 2010 Roundtable, 2010-0363191C6 - Capital dividend account - beneficiary of a trust

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.

Principal Issues: In a situation where a corporation is the beneficiary of a trust and where the trust receives a capital dividend in its taxation year, pays an amount with respect to that capital dividend to the corporate beneficiary during that taxation year and designates the amount in respect of the corporate beneficiary pursuant to subsection 104(20), when does the corporate beneficiary add, in its capital dividend account, the amount received from the trust and designated under subsection 104(20)?

Position: The amount designated by the trust in respect of the corporate beneficiary under subsection 104(20), and that was paid to that beneficiary at or before the end of the trust's taxation year, can be added to the corporation's capital dividend account at the end of the trust's taxation year.

Reasons: Before the end of the trust's taxation year, the condition requiring that the trust be resident in Canada throughout its taxation year during which the trust received a capital dividend would not be met. Furthermore, the trust cannot designate an amount under subsection 104(20) before the end of the year

2010 STEP Round Table

Q. 21 Capital Dividend Account - capital dividend received by a trust and distributed to a corporate beneficiary

A trust makes a distribution to its corporate beneficiary in respect of a capital dividend that was paid to the trust on the share of the capital stock of another corporation during a taxation year of the trust throughout which the trust was resident in Canada. The trust designates an amount under subsection 104(20) of the Act in respect of the corporate beneficiary and in respect of that dividend.

Paragraph (g) of the definition of the expression "capital dividend account" ("CDA") in subsection 89(1) of the Act provides that the corporate beneficiary of the trust can add to its CDA an amount equal to the lesser of

(i) the amount of the distribution, and
(ii) the amount designated under subsection 104(20) by the trust in respect of the corporation in respect of that dividend.

At what time will the corporate beneficiary of the trust add to its CDA the amount provided for in paragraph (g) of the definition of CDA in such a case?

CRA's Response

The amount in respect of a distribution made by a trust to its corporate beneficiary in the period in respect of a dividend (other than a taxable dividend) paid on a share of the capital stock of another corporation resident in Canada to the trust during a taxation year of the trust throughout which that trust was resident in Canada will be added to the corporate beneficiary's CDA at the end of the trust's taxation year, provided that such amount was designated under subsection 104(20) by the trust in respect of the corporation in respect of that dividend and provided that the said amount was paid to the corporate beneficiary at or before the end of the trust's taxation year.

The corporation's capital dividend account cannot be increased before the end of the trust's taxation year because the designation under subsection 104(20) cannot be made before the end of the trust's taxation year and because the condition requiring that the trust be resident in Canada throughout the taxation year in which it receives the capital dividend will not be met until the end of the trust's taxation year.

Sylvie Labarre
2010-036319
June 8, 2010