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Capital Dividends Account Explained

So, you’ve successfully built your business and amassed significant wealth within your holding company. Now you are nearing retirement and the question arises: How can you access those funds in a tax-efficient manner? One answer lies in capital dividends through the capital dividend account or CDA.

The CDA is a notional account, but it plays a pivotal role in managing your financial affairs –  especially when it comes to minimizing your tax obligations during retirement. So how does it work? 

The CDA is an account that tracks specific gains and transactions within your corporation, and its balance fluctuates as certain events occur. Here are some key scenarios that impact your CDA:

Capital Gains: 

When your company realizes capital gains, such as

  • The sale of stocks 
  • The sale of certain fixed assets
  • Proceeds from a life insurance policy contracted by your holding company
  • Capital dividends received from another company.

Since only half of these gains are taxable at the corporate tax rate, the untaxed portion of the gain increases your CDA balance.

Capital Losses

Conversely, when your company records capital losses, the untaxed half of these losses reduce the CDA balance.

Now, let’s illustrate this concept with an example:

Sarah’s Scenario

Meet Sarah, a business owner who has amassed $500,000 in various investments within her holding company, including stocks, bonds, and mutual funds. She also owns a rental property worth $500,000. Sarah is planning for her retirement and seeks advice from her accountant and portfolio manager on how to withdraw money efficiently from her company.

To pay herself a capital dividend, Sarah must realize a profit by selling an asset at a gain. She decides to sell her rental property, which she originally purchased for $250,000. Now it’s worth $500,000. This sale results in a capital gain of $250,000, with only half, or $125,000, taxable at the corporate tax rate. The non-taxable portion of $125,000 increases Sarah’s CDA balance, and she can then withdraw this amount tax-free.

The same logic applies if Sarah chooses to trigger capital gains from her stocks, bonds, or mutual funds, provided she has unrealized gains. She doesn’t need to sell all her profitable investments; instead, she can do what is called “crystallize the gains” by updating the book cost to the current market value, realizing the gains for tax purposes, and keeping her preferred investments intact.

Benefits of Capital Dividends

Capital dividends offer an effective strategy to withdraw money from a company during retirement or whenever you might need to. By using these dividends as a source of income, you can finance your personal expenses with assets accumulated in your holding company.

Given that tax laws are subject to change, diversifying your financial strategy is wise in case government regulations evolve. This is crucial if your assets are predominantly concentrated within a single tax structure, such as a holding company.

Remember that several factors can influence a successful withdrawal strategy, so we always recommend you consult with both an accountant and a portfolio manager for personalized advice. Understanding the concept of the capital dividend account and its implications for withdrawing money from your holding company can be a game changer when planning for retirement. Leveraging capital dividends can help you minimize tax liabilities and optimize your financial situation.


  • Maxime Dubé, M.Sc., CFA
    Maxime holds a Masters degree in Finance from the Université de Sherbrooke and is a CFA charterholder since 2019. He joined the Claret team in 2016 as a junior investment research analyst and was promoted to portfolio manager in 2019.

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