Quick answer: Form T2054 lets a private corporation pay a dividend tax-free to the shareholder, out of its capital dividend account. It is due when the dividend becomes payable (or is first paid, if sooner), not at tax time.
Two things must be right: the date and the account balance. An email enquiry is usually enough to check both.
The balance is easy to overstate and costly to get wrong, so we prepare the T2054 with the balance worked out, not assumed.
When is my T2054 due?
Enter the dates from your directors’ resolution. The deadline appears straight away.
Runs in your browser; nothing you enter is sent anywhere. General information, not advice for your situation.
On this page
What the form is
T2054 is the CRA form a private corporation uses to make an election under subsection 83(2): a formal choice, filed with the CRA, to treat a dividend as a capital dividend.
The capital dividend account (CDA) is a running tally, kept off the balance sheet, of amounts the corporation received tax-free: mainly the untaxed half of capital gains, plus certain life insurance proceeds. Dividends paid from it are tax-free to the shareholder.
The election is what makes it a capital dividend. Without a valid, on-time T2054, the payment is an ordinary taxable dividend, whatever the directors intended.
Who files it
A private corporation with a positive CDA balance, usually after selling an asset at a gain or receiving life insurance proceeds on a shareholder or key person.
It is a planning step, not a routine filing; many small corporations never file one.
Example: Maria’s Alberta holding corporation sells a rental property at a gain, and the untaxed half goes into the CDA. Her accountant confirms the balance first, then the directors declare a capital dividend of no more than that, payable the same day. The T2054 is due that same day. If it is filed late, a penalty applies for each month it is late (see “Late penalty” in the table below), so the date matters.
The form at a glance
| Item | Detail |
|---|---|
| Legislation | Subsection 83(2) |
| Who files | The private corporation paying the dividend |
| Due | The earlier of the day the dividend becomes payable and the first day any part of it is paid |
| Must include | A certified copy of the directors’ resolution, and a schedule computing the CDA immediately before the election |
| Late penalty | Lesser of 1% a year of the dividend and $500 a year ($41.67 a month), for each month or part of a month late (subsection 83(4)) |
What to have ready before you file
Gather these before the directors declare anything: the CDA balance and its calculation, the directors’ resolution, the payable date, and the schedule of transactions behind the balance.
Doing this first surfaces problems while there is time to fix them: a missing account number, a balance nobody has calculated, a date that does not line up.
What catches people out
The deadline. It has nothing to do with the corporate return. Declare a dividend payable immediately, and the election is due immediately.
Missing attachments. Regulation 2101 requires the certified resolution and the CDA schedule listed above. Without them, the election is incomplete.
Electing too much. Elect more than the account holds and the excess attracts a separate penalty tax under Part III. Compute the CDA before declaring, not after.
A late election costs the lesser of 1% a year of the dividend and $500 a year, pro-rated for each month or part of a month from the day the dividend became payable to the day the election is filed. The corporation estimates the penalty and pays it with the late election.
How it is filed
The corporation files it in time for the dividend, not afterwards to describe one already paid. Keep the signed copy with the working papers: in a CRA review, they show how the figures were reached.
A capital dividend is a planning decision before it is a form, timed against the CDA balance; tax planning for owner-managers is where that timing is set.
Common questions about T2054
When is the T2054 due?+
What has to be filed with it?+
What if the CDA balance was wrong?+
Can a late T2054 be accepted?+
Where this comes from
- CRA — T2054 form page
- CRA — Income Tax Folio S3-F2-C1, Capital Dividends
- CRA — Penalty for accepting a late, amended or revoked election
General information current as of , not advice for your situation. Elections are unforgiving about dates — confirm yours before you file. Please speak with a CPA about your circumstances.
Related reading
- The capital gains inclusion rate
- What the capital dividend account is
- Eligible vs non-eligible dividends
- All CRA forms we cover
Other CRA forms
Who does this work
The election is only as good as the balance behind it; if the balance proves lower, the excessive-election penalty applies. We verify it before the form is signed.
Need to check the capital dividend account balance first? That page shows what the work covers and how it is quoted.
Elections are date-driven. Email us before the deadline, not after; we quote the work in writing first.
Email us about T2054Have a question about this?
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The election is one step in a decision that starts with the corporation’s accounts; the tax work a capital dividend sits inside covers the rest.
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