9 October 2015 APFF Roundtable Q. 6, 2015-0595551C6 F - Capital Dividend Account -- summary under Paragraph 87(2)(z.1)

If Holdco (a CCPC) has realized $1M in allowable capital losses on its public company portfolio, its subsidiary (Opco) has realized a $1M taxable capital gain from the sale of its operating business, and Opco then pays a capital dividend of $1M to Holdco, Holdco will have a resulting positive capital dividend account balance of $1M, as para. (a) of the CDA definition (respecting the non-taxable portion or non-deductible portion of capital gains or losses) will not reduce the positive CDA balance arising under para. (b) of the CDA definition from the receipt of the dividend – so that Holdco can then pay a capital dividend of $1M to its individual shareholder. However, if this dividend is not paid, the ability to do so will disappear if Holdco then amalgamates with Opco, as this will cause the CDA balance to go down to nil. More particulars would be required to assess any potential application of GAAR to the dividend payment.