Capital Dividend Account (CDC);

A capital dividend account (CDA) is a "theoretical" account (it exists for tax purposes, not in the bank) held by a Canadian private company. It combines the untaxed half of capital gains (resale profits) with life insurance, allowing for tax-free payments to the owners.

Brief

"Theoretical" account: it is not shown in the company's accounts; it is calculated separately.
Filled mainly by the untaxed half of capital gains (the profit made by reselling an asset for more than it was paid for)
This also includes life insurance money that the company receives.
Before paying the money, an official form must be completed: the T2054 for federal purposes and the CO-502 for Quebec purposes.

Why does this matter?

The Capital Dividend Account (CDA) is one of the few ways to withdraw money from your business without paying a single cent in personal income tax. For example, if your company sells a building it owned and makes a $200,000 profit, half of that, or $100,000, is tax-free and can be paid to you from the CDA, tax-free. Too many French entrepreneurs overlook this and instead pay themselves regular, taxable dividends. The calculation is technical, and the form must be filled out correctly, otherwise a penalty tax will be hefty. It's a crucial step to take before each significant payment. Bankeo will connect you with a free, audited accountant/CPA experienced with incorporated companies, and we'll be there to support you every step of the way.

Frequently asked questions

What exactly is the CDC?

This is a "reserve" of money that your company can pay you tax-free. It is mainly accumulated when the company realizes a capital gain (a profit from resale) or receives a life insurance payout. This money has already escaped taxation once, so the law allows it to be returned to you without taxing it again.

How can I pay this money tax-free?

Il faut d'abord calculer le solde exact du CDC à la date du versement, puis produire un choix officiel : le formulaire T2054 auprès de l'Agence du revenu du Canada (ARC) et le CO-502 auprès de Revenu Québec. Attention : verser plus que le solde réel déclenche un impôt de pénalité élevé, d'où l'importance d'un calcul rigoureux.

Who should be monitoring their CDC?

Any owner of a private company who realizes capital gains or holds a life insurance policy in the company's name should have their accountant review the balance before any significant cash outflow. If you don't have someone to handle this type of planning, Bankeo will connect you with a verified accountant/CPA experienced with incorporated companies, free of charge, and we'll continue to support you throughout the process.