The Secret Account Your Corporation Has (That No One Talks About)

If you own a Canadian business (or holding company), there’s a hidden gem sitting quietly on your balance sheet. It’s called the Capital Dividend Account, or CDA for short.

Never heard of it? You’re not alone — even savvy entrepreneurs, accountants, and advisors often overlook it. But once you understand how it works, the CDA might just become your favourite tax-free tool.

So, what is the Capital Dividend Account?

The CDA is a notional account. That means it’s not like a chequing account you can log into online. It exists on paper, in your corporate tax filings, and it tracks certain tax-free amounts your corporation can eventually pay out to you — as a shareholder — completely tax-free.

Let’s say that again: tax-free.

Where does this tax-free money come from?

The most common way the CDA grows is through capital gains.

Here’s a quick refresher: when your corporation sells an investment or property for more than it paid, it earns a capital gain. In Canada, only 50% of a capital gain is taxable. The other 50%? That’s non-taxable — and it gets added to your CDA.

In a way, you can think of a capital gain as being split in two:

• Half goes into your corporate income and gets taxed like any other profit.

• The other half gets set aside in the CDA — untouched by tax — waiting to be paid out tax-free when you declare a capital dividend.

This is how you unlock value from the CDA.

Why small business owners should care

Most business owners think in terms of after-tax dollars. “How much can I pay myself?” “How can I get money out of my company efficiently?” The CDA is one of the few ways to pull money out of your corporation without paying a dime in personal tax.

Let’s use an example:

• Your corporation sells a rental property or stock investment.

• There’s a $200,000 capital gain.

• $100,000 is taxable (goes into corporate income).

• $100,000 is non-taxable (goes into the CDA).

That $100,000 sitting in the CDA? You can declare a capital dividend and pay that to yourself (or other shareholders), completely tax-free. You can’t do that with retained earnings, bonuses, or regular dividends.

The bottom line

The CDA is the other half of the capital gains story. Most people know they’re only taxed on half of a capital gain in a corp — but they don’t realize the other half is just as important. Because with the right strategy, that half can come out to you, tax-free.

If you own a business, it’s worth asking your accountant:

“How much do I have in my CDA?”

The answer might be a pleasant (and profitable) surprise.