Dividend refund
A dividend refund is an amount the CRA may refund to a private corporation in respect of taxable dividends it paid on its shares in a year, under subsection 129(1) of the Income Tax Act, if its return is filed within three years after the year ends. It draws on the corporation’s refundable dividend tax on hand and is claimed on its T2 return.
A buyer or seller meets a dividend refund when a private corporation holds refundable tax and pays taxable dividends. Subsection 129(1) says that, where the corporation’s return for the year is made within 3 years after the end of the year, the Minister may refund the amount without application on sending the notice of assessment, in respect of taxable dividends paid in the year at a time when the corporation was a private corporation. It also requires the refund where the corporation applies in writing within the period paragraph 129(1)(b) sets, and the rest of section 129 adds further rules.
How it is reported
- The CRA’s T2 guide says the calculation rests on two accounts: eligible and non-eligible refundable dividend tax on hand
- The amount is calculated in the Dividend refund area on page 7 of the T2 return
- It is entered on line 784 of the return
Ask which taxable dividends were paid and whether a refund was received. The account behind it is refundable dividend tax on hand, and a different payout route is the capital dividend election.
For what is paid out ahead of a sale, see paying a dividend before you sell your shares.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
- 02Canada Revenue AgencyGovernmentT2 Corporation Income Tax Guide — Chapter 8, Page 9 of the T2 return
- 03Canada Revenue AgencyGovernmentT2 Corporation – Income Tax Guide – Chapter 6: Pages 6 and 7 of the T2 return
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