robertdhull
Returning Member

Do you need to report tax-free Capital Dividends (Income Tax Folio S3-F2-C1) and if so, where/how?

I was advised that the Capital Dividend payment was tax-free to shareholders who are residents of Canada.

Getting started

You are correct these dividends are tax-free. 

Quoting directly from the CRA website link below: "This Chapter discusses capital dividends and the capital dividend account (CDA). The CDA keeps track of various tax-free surpluses accumulated by a private corporation. These surpluses may be distributed tax-free in the form of capital dividends to the corporation’s Canadian-resident shareholders.  A corporation paying a capital dividend must file an election in respect of the dividend when the dividend is paid or becomes payable (capital dividend election). In certain circumstances, a late-filed election is acceptable (late-filed capital dividend election).  If the corporation pays a capital dividend which exceeds the balance in its CDA, there will be additional tax consequences."

From my quote above - Income Tax Folio S3-F2-C1, Capital Dividends: https://bit.ly/2Aacdh3

Here is a link from TurboTax to guide you with your foreign sources:  How do I report foreign income, pension, and other foreign amounts? - https://bit.ly/2BuCFAf

Also from TaxTips - Capital Dividend: https://www.taxtips.ca/glossary/capital-dividend.htm



Getting started

@robertdhull - Is there anything else I can assist you with?
robertdhull
Returning Member

Getting started

No, I was finally able to talk to Turbo Tax support and they answered the question. My question was not if it was tax-free ... I already knew that ... it was: "Did it need to be reported anywhere?" and the answer is "no". I don't know if I can deduce from this that ANYTHING that is tax free need not be reported. Thanks for taking the time to respond.

Getting started

I'm glad you got it all figured out. Thank you for replying! I will revise the above answer with the HOW as well.

Getting started

Will Turbotax calculate Capital Dividends and maintain year to year balances?

Getting started

Yes, TurboTax will calculate Capital Dividends and maintain year to year balances.