7 October 2011 APFF Roundtable Q. 4, 2011-0412071C6 F - Modifying a Capital Dividend Election -- summary under Subsection 184(3)

Where the directors declare a capital dividend and before the payment date for the dividend the corporation (which has individual shareholders) realizes a capital loss that causes the capital dividend account to be less than the amount of the capital dividend, the fact of there being an excessive capital dividend will not be solved by the corporation passing a further resolution, before the payment date, to split the dividend in two (given that the original dividend declaration continues to be valid). However, if the corporation informs the local Tax Services Office that it wishes s. 184(3) to apply, the TSO will apply the "short cut method" under which no Part III assessment will be issued to the corporation and only the shareholders will be reassessed to include the taxable dividends in their income.