The capital dividend account maintains fair integration between an individual and corporation. When an individual incurs a capital gain only 50% is taxable and the remaining 50% is tax free. When a corporation incurs a capital gain the same concept applies. The non-taxable portion of a capital gain realized by a corporation is added to the capital dividend account. Capital dividends received by individuals are tax-free. The Capital dividend account balance is carried forward yearly on your corporate tax return.
Allan Madan, CPA
October 11, 2012
