Section 185.1

Subsection 185.1(2)

Administrative Policy

7 October 2020 APFF Roundtable Q. 11, 2020-0852231C6 F - Designation under subsection 89(14)

an eligible dividend designation must state a dollar amount, and GRIP variances are addressable under s. 185.1(2)

At 2017-0709021C6 F, CRA accepted, in circumstances specific to a wind-up, that the amount of the dividend paid out of the CDA need not be specifically stated in the applicable resolution. Given the difficulties in estimating year-end general rate income pool ("GRIP") balances, would CRA allow an eligible dividend designation to be made without indicating a specific amount, but rather indicating that the amount of the designation is equal to the lesser of the amount of the dividend paid and the GRIP balance at the end of the corporation's taxation year? CRA responded:

[A]t the end of its taxation year, the corporation has all the information necessary to determine whether it has made an "excessive eligible dividend designation" within the meaning of subsection 89(1) and, as applicable, can make the election under subsection 185.1(2) in order to avoid paying Part III.1 tax.

The CRA does not intend to adopt an administrative position that would allow a corporation to avoid making an excessive eligible dividend designation in a situation similar to the one described … . However, as indicated in the footnote to Schedule 55, the CRA already allows, as an administrative matter, mitigating the effects of an excessive eligible dividend designation by accepting that the election provided for in subsection 185.1(2) can be made by a corporation at the time of filing its income tax return, without having to wait for a notice of assessment of Part III.1 tax to be issued.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 89 - Subsection 89(14) dividend designation cannot state it is the GRIP, if less 188

9 October 2015 APFF Roundtable Q. 23, 2015-0598311C6 F - Excessive eligible dividend designation

filing of s. 185.1(2) election in (non-prescribed) manner

As no Regulation has been promulgated specifying the "prescribed manner" for electing under s. 185.1(2) to convert an excessive capital dividend into a taxable dividend, CRA indicates that one should follow the directions on its website.

Paragraph 185.1(2)(a)

Administrative Policy

13 May 2016 External T.I. 2016-0626371E5 - Subsection 185.1(2) election

election cannot disproportionately allocate to one of three separate dividends/manner of filing

During the year, Canco, a Canadian controlled private corporation, paid three separate dividends of $30,000 each to its three shareholders on separate classes of shares and, upon payment, designates each dividend under s. 89(14) as an eligible dividend pursuant to subsection 89(14). The general rate income pool at the end of the year is $60,000, so that Canco is considered to have made an excessive eligible dividend designation (“EEDD”), as defined in s. 89(1), of $10,000 in respect of each eligible dividend paid.

Is it possible for the s.185.1(2) election to deem the entire amount of one of the eligible dividends paid in the year to be an ordinary taxable dividend, so that one shareholder receives a $30,000 ordinary taxable dividend and the other two each receive a $30,000 eligible dividend? If no, would the corporation be obliged to file three separate (rather than a single) election under s. 185.1(2), or could the corporation file one election for all dividends? Would the answer change (in “scenario #2”) if two of the three $30,000 dividends arose as deemed dividends on share redemptions?

CRA responded:

The election available in subsection 185.1(2) is made in respect of each EEDD that is made in respect of each eligible dividend paid by Canco in the year. … [T]he original eligible dividend paid by Canco and received by a shareholder may be reduced by an elected amount up to the EEDD in respect of the dividend. This upper limit is stated in subparagraph 185.1(2)(a)(ii). Therefore, in scenario#1, Canco can reduce the $30,000 original eligible dividend paid on the Class A shares by a maximum of $10,000 by electing on the full amount of the EEDD in respect of that dividend. … It is not possible to elect on the full amount of the $30,000 eligible dividend paid to the Class A shareholder under subsection 185.1(2) to reduce the eligible dividend amount to nil. …

The fact that two of the eligible dividends paid in scenario #2 are deemed taxable dividends resulting from share redemptions, pursuant to subsection 84(3), does not change the answer above.

CRA has published the prescribed manner… .

While the election must be made in respect of each EEDD on each eligible dividend, these elections can be combined into one letter to your tax centre… .

Subsection 185.1(3)

Administrative Policy

7 October 2021 APFF Roundtable Q. 10, 2021-0901001C6 - Application of subsection 184(3) and 185.1(3)

concurrence can be given to the election in a share sale agreement before the excessive eligible dividend designation is identified

Vendors may proceed with a preliminary reorganization before a share sale and agree in advance that elections will be made in the event of there having been excessive eligible dividend designations.

  1. Will CRA accept an advance concurrence to the making of the s. 185.1(3) election regarding an excessive eligible dividend designation?
  2. Are amended T5 slips regarding an excessive eligible dividend necessary?

CRA responded:


… In a context similar to that described in the statement of this question, the CRA generally accepts that shareholders may give their concurrence in advance, through undertakings under the various sale agreements, to the making of [the] election … .


Where a corporation files an election under subsection 185.1(2), the CRA requires the corporation to provide, inter alia, at the time of the election, either the revised amounts of eligible dividends and of separate ordinary taxable dividends to each shareholder, or copies of T5 slips.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) CRA generally will accept the concurrence by a share vendor to an s. 184(3) election in advance of the excessive eligible dividend being identified 243