CDA calculations: CICA works with CRA to mitigate risks

Capital dividend account (CDA) calculations can be challenging, and incorrect calculations can be costly to the taxpayer. The Canada Revenue Agency (CRA) is in discussions with CICA on ways to improve the process and availability of information.

Members of the CICA Tax Policy Committee are working with CRA officials to help find a solution to persistent administrative problems for tax practitioners and their clients related to CDA calculations. The aim is to identify ways to mitigate the risk of an incorrect CDA calculation and the resultant incremental costs.

CDA account calculations are cumulative and can cover many years. Sometimes, it can be difficult for a taxpayer and the advisor to be certain that the calculation of the CDA is accurate, for example, due to lost data or a change of advisers. If the CDA is improperly calculated, the taxpayer could have to pay a penalty or make an election to treat an excess amount as a taxable dividend. In either case an unexpected, and unwanted, additional cost usually arises, leading to higher administrative costs and, in extreme cases, litigation between taxpayers and their advisers.

Computing the CDA is the taxpayer's responsibility. CRA is working on ways to improve the accumulation of CDA information. Currently, it takes CRA from six to eight weeks to reply to requests for CDA information, and the taxpayer is still obliged to verify any CDA information that the CRA provides.

To help ease compliance for taxpayers in this area, CICA and CRA are in discussions about improving the process as follows:

  • Develop a CDA request form, in both paper and electronic formats, perhaps available on the CRA’s My Business Account website.
  • Use the form to gather available CDA calculation data from the taxpayer.
  • Clarify on the form that the taxpayer is responsible for the CDA calculation and that CRA cannot provide any assurance that any CRA-provided data is accurate and complete.
  • Specify the circumstances in which CRA will complete the form if the taxpayer is missing information.

As of December 1, 2012, CRA will provide confirmation of CDA balance requests received through My Business Account. In the future, CRA also plans to upload on My Business Account all taxpayer information that may be relevant to a taxpayer's CDA calculation, such as capital gains by year. This will give taxpayers some assurance over the consistency between taxpayer’s and CRA’s information.

If you have comments or ideas about these or other potential CRA service improvements, email Gabe Hayos.

This document was originally prepared by a legacy CPA organization.