Overview of the Capital Dividend Account (CDA) in 3 brief questions: Pierre Lafontaine, Director, Advanced Financial and Tax Solutions, has the answers!
1. In a few words, what is the CDA?
“It is a tax account, not an accounting account, which allows for the integration principle to be respected. Ultimately, it is a calculation to determine the amount of non-taxable capital dividend that can be paid by a corporation.”
2. Who can benefit from the CDA?
"Only private Canadian companies. When they have a positive CDA balance, it allows for a tax-free capital dividend to be paid to shareholders. As an example, capital gains or net proceeds from a life insurance benefit (reduced by the ACB) will affect the CDA balance positively, while a capital loss will have the opposite effect."
3. In what context should the CDA be highlighted to properly guide a client?
"The CDA is a very effective way to illustrate the wide range of benefits of life insurance. It can be a key element in optimal estate planning”.
"You can also think of the CDA to demonstrate the importance of including investment products that generate capital gains in a diversified portfolio".
To learn more about this topic, consult the Capital Dividend Account information document.
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