CRA Form T2054

CRA Form T2054, titled ‘Election for a Capital Dividend Under Subsection 83(2) of the Income Tax Act’, is a form filed by a private corporation, in order to elect to pay a Capital Dividend. It is compulsory to make this election, before the corporation can distribute capital dividends.

A corporation must file this form on or before the earlier of:

• The date the capital dividend becomes payable, or
• The date any portion of the capital dividend is actually paid.

Capital Dividends are distributed from a corporation’s Capital Dividend Account (CDA) and are tax-free to Canadian resident shareholders. The form must be accompanied by a certified copy of the resolution declaring the dividend.

The Capital Dividend Account includes:

• The non-taxable (allowable) portion of capital gains, minus allowable capital losses,
• Life insurance proceeds received by the corporation (as beneficiary), less the policy’s adjusted cost base (ACB),
• Capital dividends received from other private corporations,
• Certain trust distributions.