A private corporation elected under s. 83(2) on a dividend amount in excess of its capital dividend account (CDA), and it paid Part III tax under s. 184(2). Does that excess affect the subsequent CDA computation? CRA responded:
[S]ubsection 83(2) ensures that the portion of the dividend covered by an election pursuant to subsection 83(2) that exceeds the CDA immediately before the time the dividend becomes payable, is not deemed to be a capital dividend. … [T]he excess portion … would not reduce the subsequently-computed CDA of the corporation that paid the dividend.
Furthermore, subject to an election under subsection 184(3), paragraph 83(2)(b) results in no part of a dividend that is the subject of an election made under subsection 83(2) being included in computing the income of any shareholder. … [A]ny corporate shareholder would add to its CDA the entire dividend designated under the subsection 83(2) election (including the excess of the dividend on the capital dividend), provided that the dividend payor has not made an election pursuant to subsection 184(3).