Deemed dividends

Section 84 – Deemed dividends

In some situations, we consider that an amount paid by a corporation resident in Canada and received by a shareholder is a dividend. In general terms, the situations include the following:

  1. the paid-up capital of the corporation increases other than by means of a stock dividend without a corresponding increase in net assets or decrease in net liabilities
  2. property is distributed to shareholders when a corporation's business is wound-up, discontinued, or reorganized
  3. any of the company's own shares are redeemed, acquired, or cancelled, other than by an ordinary purchase in the open market
  4. the paid-up capital for any class of shares of capital stock is reduced

Generally, you calculate the deemed dividend for each of the situations described above as follows:

  • For situation a), include the increase in paid-up capital of the shares in that class. However, subtract any increase in the value of net assets (or decrease in the value of net liabilities) or any decrease in the paid-up capital of the shares of any other class
  • For situation b), include the full amount or value of the funds or property distributed. However, subtract any reduction in the paid-up capital for the class of shares for which the distribution was made
  • For situation c), include the full amount paid. However, deduct the paid-up capital for the shares that were redeemed, acquired, or cancelled
  • For situation d), include the amount paid minus any decrease in paid-up capital

For more information on deemed dividends, visit Canada Revenue Agency or call 1-800-959-5525.

Subsection 15(3) – Deemed dividends

Under certain circumstances, we may consider the interest or dividends paid by a corporation resident in Canada on an income bond or income debenture to be dividends.

If they are eligible dividends, report these deemed dividends in Box 24 – Actual amount of eligible dividends and Box 25 – Taxable amount of eligible dividends of the T5 slip if the corporation pays them to an individual. Report them in box 24 only, if they are paid to a corporation.

If they are dividends other than eligible dividends, report these deemed dividends in Box 10 – Actual amount of dividends other than eligible dividends and Box 11 – Taxable amount of dividends other than eligible dividends of the T5 slip if the corporation pays them to an individual. Report them in box 10 only if they are paid to a corporation.

Report amounts we do not consider to be dividends as interest income in Box 13 – Interest from Canadian sources or Box 14 – Other income from Canadian sources.

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