Could anyone please advise if I need to paper-file the T2054 form or is it automatically generated in the e-filed return?
You need to paper file the T2054 CDA election along with a duly completed Schedule 89 and a certified copy of the directors resolution authorizing the Capital Dividend prior to making payment of the dividend.
Thanks very much!
And a note of caution: a lot of T2 accounts on CRA’s site do not have updated CDA info - theoretically (and sometimes it actually happens), when you file your T2054 CRA updates the info on RAC (and/or MyAccount as applicable). You can verify the balance at that point. Of course you can always phone in, too prior to filing the T2054.
We are filing Schedule 89’s for all of our corporations in order to get the CDA balance onto Represent a Client.
CRA has some information that may not be correct in some instances… and they do have track of section 85 rollovers of capital property and ECP going back as far as at least 1991 that I have seen. These are included in their CDA calculation. I have found some material errors and assumptions on CRA’s part that we needed to submit documentation on in order to challenge their calcs. I find they make some assumptions when they implemented the GIFI back in 2000 or 2001 by taking some balance sheet items and trying to fit them into their calculations.
The Schedule 89 is the absolute key now… this can be done prior to contemplating a Capital Dividend OR must be done when applying to pay out a Capital Dividend.
When you submit your calculations with the S89 you need to basically start with the incorporation date and log all changes to the Capital Dividend account beginning with incorporation fees (whether or not you even booked those costs onto the T2S(8A) which became the Schedule 10… which is now included on the Schedule 8… lol.
That’s probably a good idea snowplowguy; may save considerable headaches in the future (and maybe create a few in the present…?). But at least eventually one can come to a correct, and hopefully agreed-to, amount.
I’d be curious to know what CRA would do if they determined an amount that ended up too high - say $50K in CDA, allowed the dividend to be paid, then some time later decided their “confirmed” amount was wrong (say $10K was correct). Then what?
Well… I have one in particular where I paid out Capital Dividends in 2014, before there was a Schedule 89. I recently submitted a schedule 89 and asked for verification because this company has another large Capital Dividend to pay. The CRA made blatant mistakes when they provided verification, which in their opinion caused the CDA in 2014 to be excessive.
Here is how they treated what they believed to be an excessive CDA Election;
“The capital dividend payable on March 31, 2014 was excessive by $227,261, as the acquisition of eligible capital property (ECP) for $100,000 and $477,174 in 1992 were not included in the CDA calculation at time of the election. We will not reassess this prior election; however, the negative amount of ($227,261) had to be absolved before a positive CDA could be established, which has resulted in a reduced CDA balance”
When the CRA did the verification they actually duplicated the 577,174 ECP purchase. The T2S(8A) and Schedule 10 didn’t have a very good mechanism for dealing with subsection 14(3) and paragraph 14(3)(b) which deny CECA on non-arms length transfers but still allows the ACB to be used on a subsequent sale. Not that any of this matters… the point was to show that instead of nailing the corporation with an excessive CDA election, they let the account overdraw.
Another note of possible interest… verifying Capital Dividends Received from other corporations;
“The CDA balance provided includes dividends received from a payer corporation who’s election has not been processed at this time. We have input the balance as reported by you. If the election for the payer corporation is determined to be excessive, this will result in changes to your CDA balance.”
Well, that is an interesting result. “At least” they didn’t simply reassess (THAT would have been interesting in Court…). At the end of the day, if I understand correctly, the client is actually in the right place - although by the wrong (ultimate) methodology. It ends up being a timing difference in the long run - they got their cap div early.
The client is in the right, both on the prior election and on the current election.
There was a rollover of poultry quota from shareholder to the corporation back in 1992 in order to utilize capital gains exemption. Keeping in line with ss14(3) we did not add this to the T2S(8A) Schedule (the old CEC Schedule) until the year (lets say 2012) the corporation disposed of that asset per (paragraph 14(3(b)).
When the CRA did their verification they added the 577,000 of ECP in 1992 based on the T2057 they still had in the client’s file but also added that exact same addition again in 2012 (when we added it to the pool). They basically duplicated the purchase of ECP such that a 577,000 purchase was entered by them as 1,154,000 which screwed up the CDA.
I’m sure it will get sorted out as I have written in with all of the necessary purchases and sales and an explanation of how their calculation is flawed.
The point was… in this situation, even though I feel their calculation will prove to be wrong, they allowed the CDA to be overdrawn. At the point of verification, I’m sure the 2014 Election was not statute barred… so I’m not sure why they would be so kind.
I never heard anything back regarding an objection I sent in last spring regarding the CRA’s erroneous calculation. Last month I figured I would push the issue by submitting another Schedule 89 along with a completed T2054 requesting another 178,996 capital dividend.
I received a very fast reply this time. The CRA has reversed their position that our 2014 CDA payment was excessive by $277,261 and have allowed a further $178,996 payment. This is a swing of over $456,000.
Sometimes things work out the way they are supposed to.
CDA Letter.pdf (61.6 KB)
Was the CDA balance the result of a key person insurance payout or the non taxable portion of a capital gain??
No Life Insurance
In my case the calculation included a mix of Gain on Eligible Capital Property (pre 2017), Capital Gains, as well as Capital Dividends Received from an unrelated corporation.
Kind of related…but not quite:
I just received TWO T2054 approval letters … from elections made in mid-2016 (different clients). Good to see that CRA is right on top of things.
I also had two recently from early 2017 T2054’s.