Capital dividends received by Canadian resident taxpayers are tax-free. However, the amount of the capital dividend paid to a non-resident shareholder is subject to Part XIII tax.-S.212(2)(b). This important tax attribute is lost if not used to make distributions only to those persons who can benefit from it.
The CRA takes the position is that a capital dividend cannot be paid by a way of journal entry. The dividend has to be validly declared and a promissory note can be issued if it is accepted as an absolute, unconditional payment by the recipient.