T2054, Election for a Capital Dividend Under Subsection 83(2)

To correctly calculate the CDA balance immediately before this dividend becomes payable, proceed as follows for each election for a capital dividend under subsection 83(2) ITA that you make:

1. Complete Form 89 (Jump Code: 89) entering the CDA items before the election for a capital dividend under subsection 83(2) ITA is made.
2. Complete Form T2054. However, do not enter anything on line 510 of Schedule 3 (Jump Code: 3), because the amount on line 510 is subtracted from the CDA balance immediately before the date on which the dividend becomes payable. If you enter an amount on line 510 in that situation, this amount will be updated to line 110 of Form T2054 and an excess amount of dividend declared could be calculated on line 2A.
3. Print Form T2054 and Schedule 89 using the Print Form command (Ctrl+P), enclose a certified copy of the resolution or authorization as required by regulation 2101 of the Income Tax Regulations, then mail these documents, separately from any other return, to the appropriate tax services office. Note that the data in Form T2054 and Schedule 89 is not included in the T2 Return - Bar codes and is not sent to the CRA when the return is electronically filed.
4. Select the Form completed custom box.
5. Enter the dividend amount paid out of the CDA on line 510 of Schedule 3 after having made sure to perform the previous four steps.

To make it easier for you to consult the different copies of the form, the box Form completed section has been added at the top of form. If you select this box:

• the “Date” field in Part 11 will become an input field by indicating the date on which the box has been selected;
• the CDA balance amount at the time the box is selected will be retained on line 110 of Part 2;
• a new line will be created in Part 2B of Schedule 89;
• the last field in column 1 of Part 2B of Schedule 89 will be completed automatically according to the date entered in the field “Date the dividend become payable” of the last copy of Form T2054 in which the box Form completed is selected; and
• the last field in column 7 of Part 2B of Schedule 89 will be completed automatically according to the amount on line 100 of the copy of Form T2054 in which the box Form completed is selected.

When creating a new copy of the form in a client file, the line Date of the last election in the Part 2B of this new copy will automatically be updated according to the date entered in Part 11 of the previous copy.

The form becomes applicable when a dividend amount for which this election is made is entered on line 100. However, in order for the form to be accepted by the government, complete all of the relevant lines of Parts 2 to 7 based on the taxpayer’s situation, in particular the following lines:

• Capital dividend account immediately before this dividend becomes payable
• Date the dividend becomes payable
• Has there been an acquisition of control since the date of the last election?
• Since your last election, or since the beginning of your CDA calculation if you have never made an election, does your CDA include a capital dividend received from another corporation that would have made an election under subsection 83(2)?

Please note that Parts 4, 5 and 7 are automatically carried over when the following schedules are completed:

• Part 4: Schedule 89 (Part 5);

• Part 5: Schedule 6 (Parts 1 to 7);

• Part 7: Schedule 89 (Part 6).

Since the amounts in Schedule 6 are carried over to Part 5, a custom checkbox has been added to remove the deemed gains under paragraph 40(3.1)(a) ITA and the deemed losses under subsection 40(3.12) ITA from the calculation and the printout.

Any corporation that files this election after the due date is subject to a late-filing penalty. The due date for the election is the earlier of:

• the day the dividend becomes payable; and
• the first day on which any portion of the dividend was paid.

If the dividend amount for which the election is made (line 100) exceeds the CDA balance (line 110), the corporation is required to pay Part III tax on the excess dividends. However, the corporation may be able to avoid paying Part III tax by filing an election under subsection 184(3) ITA.

Part 11 of the form is completed automatically based on information entered in the “Certification” section of Form Corporate Identification and Other Information (Jump Code: ID).

Mail one completed copy of this election, separately from any other return, to the following address on or before the earlier of:

• the day the dividend becomes payable; and
• the first day on which any part of the dividend was paid.

Prince Edward Island Tax Centre
275 Pope Road
Summerside PE  C1N 6A2