DEFINITION of 'Capital Dividend Account - CDA'

A special corporate tax account which gives shareholders designated capital dividends, tax-free. This account is not recorded in the corporation's taxable accounting entries or financial statements. For this type of account, capital dividend is taken out from paid-in capital and not from retained earnings. As long as the company has this account, they can designate an appropriate amount of dividends as a capital dividend.

BREAKING DOWN 'Capital Dividend Account - CDA'

When capital dividends are paid out to shareholders, these are not taxable. The Capital Dividend Account is part of a tax provision whose goal it is to enable tax-free money received by a company, to then be given to its shareholders, tax free. Therefore, shareholders are not required to pay taxes on these distributions.

RELATED TERMS
  1. Stock Dividend

    A dividend payment made in the form of additional shares, rather ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Liquidating Dividend

    A type of payment made by a corporation to its shareholders during ...
  4. Capital Dividend

    A type of payment by a firm to its investors that is drawn from ...
  5. Dividend Policy

    The policy a company uses to decide how much it will pay out ...
  6. Constructive Dividend

    A concept in U.S. taxation in which various distributions to ...
Related Articles
  1. Investing

    How Dividends Affect Stockholders' Equity

    Find out how dividends affect a company's stockholders' equity and how the accounting process changes based on the type of dividend issued.
  2. Investing

    Which Is Best: Cash Dividend Or Stock Dividend?

    Cash dividends are paid to shareholders when a company decides not to use the money for operations, but instead, transfer economic value to its shareholders.
  3. Investing

    The Truth About Dividends

    Dividends may seem like money for nothing, but they have several implications.
  4. Taxes

    Understanding How Dividends Are Taxed

    Learn how dividends are taxed by the IRS, and understand the different types of dividend income as well as the capital gains tax rates.
  5. Investing

    Dividend Facts You May Not Know

    Discover the issues that complicate these payouts for investors.
  6. Investing

    Understanding Taxes on Mutual Funds Dividends

    Learn about the basics of mutual fund dividend taxation, including how and why mutual funds pay dividends and when different tax rates apply to dividend income.
  7. Financial Advisor

    How to Plan for Taxes on Dividends

    Dividends are taxed differently than other investment income. Here are some strategies to help lower taxes on dividends.
  8. Investing

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  9. Investing

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  10. Taxes

    3 Tax Implications of Dividend Stocks

    Dividend paying companies are attractive in a low interest rate environment, but income seeking investors have to be careful of the potential tax hit.
RELATED FAQS
  1. If I reinvest my dividends, are they still taxable?

    Take a brief look at how the Internal Revenue Service taxes different kinds of dividends, including taxation on dividends ... Read Answer >>
  2. Are dividends considered an expense?

    Learn how dividends are accounted for and why cash or stock dividends on common or preferred shares are not considered an ... Read Answer >>
  3. Why is there controversy over the use of the information ratio?

    Understand the effect that stock dividends have on a company's retained earnings account and how large and small dividends ... Read Answer >>
  4. How do dividends affect the balance sheet?

    Learn how different types of dividends, such as cash dividends and stock dividends, affect a company's balance sheet, based ... Read Answer >>
  5. Is there a difference between capital gains and dividend income?

    Selling something for a profits leads to capital gains. A payment made by a corporations to stockholders is a dividend. Both ... Read Answer >>
  6. How do dividends affect retained earnings?

    Find out how distribution of dividends affects a company's retained earnings, including the difference between cash dividends ... Read Answer >>
Hot Definitions
  1. Quadruple Witching

    The expiration date of various stock index futures, stock index options, stock options and single stock futures. All stock ...
  2. Co-pay

    A type of insurance policy where the insured pays a specified amount of out-of-pocket expenses for health-care services such ...
  3. Protectionism

    Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local ...
  4. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  5. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  6. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
Trading Center