Schedule 3 (dividends received and paid)
Schedule 3 of the T2 corporation income tax return is the CRA schedule titled Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation. A corporation that received or paid dividends in the year completes it to report them and to calculate any Part IV tax.
Owners of a holding company meet Schedule 3 because dividends moving between corporations are reported on it, year by year. The CRA describes it as a schedule for any corporation to report various non-taxable dividends, deductible dividends and taxable dividends. A buyer reading a target’s returns can see from it whether dividends moved in or out.
What the CRA guide says about it
- The T2 guide says to complete Schedule 3 if the corporation either received or paid dividends.
- The total of columns 235 and 240 is entered on line 320 of the return: taxable dividends deductible in calculating taxable income under section 112 or 113, or subsection 138(6).
- Lines 330 to 345 take current-year and previous-year non-capital losses and farm losses used to reduce dividends subject to Part IV tax.
What to ask
Ask for the schedule for each year the company paid or received dividends. Ask the accountant how any Part IV tax arose. The schedule records the figures; the Income Tax Act decides whether a given dividend is deductible. For a related deal question, see paying a dividend before selling the shares.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentT2SCH3 Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation
- 02Canada Revenue AgencyGovernmentT2 Corporation – Income Tax Guide – Chapter 3: Page 3 of the T2 return
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