Subco declared a dividend payable to its parent (Parentco) which, in turn, declared a corresponding dividend to its individual shareholder, with a s. 83(2) election being made in both cases. When, on audit, CRA noted that the dividends declared were not recorded in the books of account of Parentco and Subco and that there were not cash payments, the accountant recorded book entries for Subco and Parentco showing amounts due for the dividends. In finding that this was insufficient to give rise to a capital dividend “received,” so that there had been no addition to the capital dividend account of Parentco, the Directorate stated:
[T]he mere making of the accounting entries … does not in itself constitute the payment of a dividend … by either Subco or Parentco.