9 October 2025 APFF Roundtable Q. 11, 2025-1071521C6 - Validity of a CDA election

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83(2), 83(3), 84(7), 84.1, Reg. 2101

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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issues: 1. Whether the CRA would consider a capital dividend election to be invalid in the situation described on the basis that the amount of the dividend is not indicated? 2. Whether the CRA would consider a late-filed capital dividend election to be valid where the penalty under subsection 83(4) is paid, but the amount of the dividend is still not indicated in a new resolution.

Position: 1. Generally, yes. 2. No.

Reasons: According to the law and previous positions.

FEDERAL TAX ROUNDTABLE OCTOBER 9, 2025
2025 APFF CONFERENCE

11. Validity of the CDA election

In the context of Question 9 of the Federal Tax Roundtable at the 2020 APFF Conference, the CRA was asked whether it would accept a CDA election whose amount is determined by a mathematical formula.

In its response, the CRA stated that it expected that the election form (T2054) and the accompanying resolution will refer to the amount of the dividend covered by the election. The CRA also specified the amount of penalties applicable in the case of a late-filed election.

Consider the following situation:

ABC Inc. sold its shares of the capital stock of Subsidiary D Inc. to an unrelated third party on August 1, 2025. The terms of the sale price were as set out in a typical share sale agreement, which established an estimated sale price based on the financial data available at the time the sale agreement was signed. The final sale price will be determined no later than November 1, 2025, i.e. 90 days after signature, with the production of audited financial statements. ABC Inc. adopted a resolution on August 2, 2025 providing for the payment of a capital dividend pursuant to subsection 83(2) corresponding to the portion of the non-taxable gain realized on the sale of the shares of Subsidiary D Inc., the amount of which will not be known with certainty until November 1, 2025.

Questions for the CRA

Further to its 2020 response, could the CRA comment on the following two questions?

(a) Would the CRA consider the election made and filed with the CRA on August 2, 2025 to be invalid because it is not accompanied by an amount?

(b) Would the CRA consider an election filed late with the CRA after November 1, 2025 with applicable penalties, and in the absence of a new resolution specifying an amount, as valid?

CRA Response

The CRA's position, as stated in Technical Interpretation 2020-0852211C6 (footnote 1), remains that, in general, the amount of the dividend covered by the subsection 83(2) election must be reported on Form T2054 (footnote 2) and the resolution authorizing the election must be filed in order for the election to be considered valid, regardless of whether the election is filed on time or late and accompanied by payment of the penalty established under subsection 83(4).

Linda Do
October 9, 2025
2025-107152

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 CANADA REVENUE AGENCY, Technical Interpretation 2020-0852211C6, October 7, 2020.

2 CANADA REVENUE AGENCY, Form T2054, "Election for a Capital Dividend Under Subsection 83(2)”

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Text of Severed Letter

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Position: 1. Generally, yes. 2. No.

Reasons: According to the law and previous positions.

TABLE RONDE SUR LA FISCALITÉ FÉDÉRALE DU 9 OCTOBRE 2025

APFF - CONGRÈS 2025

11. Validité du choix de CDC

Dans le cadre de la question 9 de la Table ronde sur la fiscalité fédérale du Congrès 2020 de l’APFF, l’ARC a été questionnée à savoir si elle accepterait un choix de CDC dont le montant est déterminé par une formule mathématique.

Dans sa réponse, l’ARC a alors mentionné qu’elle s’attendait à ce que le formulaire de choix (T2054) et la résolution l’accompagnant fassent mention du montant du dividende visé par le choix. De plus, l’ARC a également précisé le montant des pénalités applicables dans le cas d’un choix produit en retard.

Prenons la situation suivante :

La société ABC inc. vend ses actions du capital-actions de Filiale D inc. à un tiers non lié en date du 1er août 2025. Les modalités du prix de vente sont telles qu’établies dans un contrat typique de vente d’actions qui établit un prix de vente estimé fondé sur les données financières disponibles au moment de la signature du contrat de vente. Le prix de vente final sera déterminé au plus tard le 1er novembre 2025, soit 90 jours après la signature, avec la production des états financiers audités. La société ABC inc. adopte une résolution le 2 août 2025 prévoyant le versement d’un dividende en capital conformément au paragraphe 83(2) L.I.R. correspondant à la partie du gain non imposable réalisé lors de la vente des actions de Filiale D inc. dont le montant ne sera connu avec certitude que le 1er novembre 2025.

Questions à l’ARC

Dans la continuité de sa réponse de 2020, est-ce que l’ARC pourrait fournir des commentaires à l’égard des deux questions suivantes :

a) Est-ce que l’ARC considérerait le choix exercé et produit auprès de l’ARC le 2 août 2025 comme invalide, car ce dernier n’est pas accompagné d’un montant?

b) Est-ce que l’ARC considérerait un choix produit en retard auprès de l’ARC après le 1er novembre 2025 avec les pénalités applicables, et en l’absence d’une nouvelle résolution précisant un montant, comme valide?

Réponse de l’ARC

La position de l’ARC, telle qu’elle a été énoncée dans l’interprétation technique 2020-0852211C6 (footnote 1) , demeure à l’effet que, de façon générale, le montant du dividende visé par le choix prévu au paragraphe 83(2) L.I.R. doit être indiqué sur le formulaire T2054 (footnote 2) et la résolution autorisant ce choix afin que celui-ci soit considéré valide et ce, peu importe que ce choix soit produit dans les délais prescrits ou en retard et accompagné du paiement de la pénalité établie aux termes du paragraphe 83(4) L.I.R.

Linda Do
Le 9 octobre 2025
2025-107152

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 AGENCE DU REVENU DU CANADA, interprétation technique 2020-0852211C6, 7 octobre 2020.

2 AGENCE DU REVENU DU CANADA, Formulaire T2054, « Choix concernant un dividende en capital selon le paragraphe 83(2) ».

Summaries

Summary Under

Tax Topics - Income Tax Act - Section 83 - Subsection 83(2)

a valid s. 83(2) election and the accompanying resolution must specify a dollar amount

ABC Inc. sold its shares of a subsidiary to an unrelated third party on August 1, 2025 pursuant to a share sale agreement, which established an estimated sale price based on the financial data available at the time the sale agreement was signed, but provided for the determination of the final sale price, no later than November 1, 2025, based on the audited financial statements. ABC Inc. adopted a resolution on August 2, 2025 providing for the payment of a capital dividend pursuant to s. 83(2) corresponding to the portion of the non-taxable gain realized on the sale, but whose amount would not be known with certainty until November 1, 2025.

(a) Would CRA consider the election filed on August 2, 2025 to be invalid because it is not accompanied by an amount?

(b) Would an election is filed late (after November 1, 2025) with the applicable penalties, band in the absence of a new resolution specifying an amount, be valid?

CRA responded:

The CRA's position, as stated in Technical Interpretation 2020-0852211C6, remains that, generally, the amount of the dividend designated under the election provided for in subsection 83(2) must be stated on Form T2054 and in the resolution authorizing that election in order for it to be considered valid, regardless of whether the election is filed within the prescribed time limits, or late and accompanied by the payment of the penalty established under subsection 83(4).

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9 October 2025 APFF Roundtable Q. 11, 2025-1071521C6 - Validity of a CDA election

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