Stock dividend
A stock dividend is a dividend paid by issuing shares of the paying corporation instead of money. The CRA says subsection 248(1) of the Income Tax Act defines it to include a dividend paid to the extent it is paid by issuing shares of any class of the corporation’s capital stock.
The CRA’s folio on taxable dividends explains that a stock dividend is defined in subsection 248(1) to include any dividend a corporation pays to the extent it issues shares of any class of its capital stock. An owner may meet it in a reorganization before a sale. See paying a dividend before a share sale.
Corporate and tax treatment
Under section 43(1) of the Canada Business Corporations Act, a corporation may pay a dividend by issuing fully paid shares, and section 43(2) adds the declared amount of the dividend, stated as an amount of money, to the stated capital account for the class or series issued. For tax, the amount of a stock dividend is set by paragraphs (a) to (c) of the definition of amount in subsection 248(1); the general case turns on the increase in paid-up capital, subject to the exceptions there. See deemed dividend.
What to ask
- Which class of shares was issued, and what rights it carries.
- How the amount of the dividend was set under the Income Tax Act.
- Whether the corporation’s own statute allows paying a dividend in shares.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of Canada (Department of Justice)GovernmentIncome Tax Act, section 248 (definitions, including business)
- 02Canada Revenue AgencyGovernmentIncome Tax Folio S3-F2-C2, Taxable Dividends from Corporations Resident in Canada
- 03Government of Canada (Department of Justice)GovernmentCanada Business Corporations Act, section 43 (form of dividend)
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