On January 1, Corporation A paid a capital dividend of $40,000 to its sole shareholder, Corporation B, but did not make a late capital dividend election until September 1. On January 2, Corporation B paid a capital dividend of $40,000 to its sole shareholder, Mr. B, but did not make a late capital dividend election until September 1. Could Corporation B include in its capital dividend account, on January 2, the $40,000 dividend it received out of Company A's capital dividend account?
After noting that the effect of s. 83(3) was that “the shareholder could add the dividend received to the shareholder’s capital dividend account at the time of receipt of the dividend,” CRA further noted that as Corporation A had made a valid late election “the election would be deemed to have been made on January 1,” so that “starting January 1, Corporation B could add the $40,000 dividend amount to its capital dividend account. Similarly:
On September 1, Corporation B filed Form T2054 and made a late election in accordance with the terms of subsection 83(3), including, inter alia, the payment of the penalty. Mr. B thereby received on January 2 a capital dividend that would not be required to be included in computing his income.