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Capital Dividends Are Tax Free

Capital Dividends

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.


Pro Tip


The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.


Sam Faris reduced the significant unreported income based on net worth audit to be nil. Sam’s approach in fighting these types of complex audits is unique and sophisticated. He found countless mistakes made by the auditor which were rectified when Sam appealed the audit decision. Instead of owing significant amount of taxes, Sam reduced it to zero. I highly recommend to hire Sam for this type of audits and any CRA problem.”

E.M., Ottawa