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. Liquidating Dividend

    A type of payment made by a corporation to its shareholders during ...
  3. Constructive Dividend

    A concept in U.S. taxation in which various distributions to ...
  4. Accumulating Shares

    Common stock given to current shareholders of a company in place ...
  5. Cash Dividend

    Money paid to stockholders, normally out of the corporation's ...
  6. Special Dividend

    A non-recurring distribution of company assets, usually in the ...
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

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  3. 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.
  4. Investing

    Dividend Facts You May Not Know

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

    Due Diligence On Dividends

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

    How Dividends Affect Stock Prices

    Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
Hot Definitions
  1. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  2. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  3. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  4. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  6. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
Trading Center