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.

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  1. How do dividend distributions affect additional paid in capital?

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  2. How do dividends affect retained earnings?

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