The Capital Dividend Account (CDA) is an underlying account within Voyant's Canadian Holding Company model. It is used to represent the tax-free portion of eligible capital gains that can be distributed to shareholders as capital dividends under Canadian tax rules.
Below are answers to some of the most common questions about how the CDA behaves in Voyant.
Why doesn't the CDA distribution automatically split based on share ownership?
Question
Why is the CDA credit not equally applied to both shareholders in the plan, when they each own 50% of the company?
Answer
This behaviour is intentional and is driven by Voyant's tax optimisation engine.
When distributing corporate dividends, including capital dividends from the CDA, the software looks for the most tax-efficient outcome for the household rather than simply allocating dividends based on ownership percentages.
For example, if two shareholders each own 50% of the company, Voyant may allocate more or all of a CDA distribution to the shareholder with the lower marginal tax rate. This can reduce the family's overall tax burden and improve long-term planning outcomes.
As a result, CDA distributions may not always reflect ownership percentages, even when share ownership is equal
Note: This example refers to a Holding Company that is jointly owned by two individuals within the same Voyant plan (for example, spouses who each own 50% of the company). In these scenarios, Voyant optimizes dividend distributions across both individuals to produce the most tax-efficient outcome for the household.
Can I control how much of the CDA is distributed each year?
Question
I'd like to preserve some of the CDA and take a blend of tax-free and taxable dividends each year to help manage OAS clawbacks. Can I override the withdrawal order?
Answer
Not currently.
Voyant automatically distributes corporate dividends using the following principle:
- Capital Dividend Account (CDA) first
- Taxable dividend accounts afterwards
This withdrawal order is hard-coded into the software and cannot currently be changed.
The logic is designed to use the most tax-efficient source first. However, there are situations where advisers may prefer to preserve some CDA balance and instead distribute a combination of tax-free and taxable dividends over multiple years to manage income levels, OAS clawbacks, or future tax brackets.
That strategy cannot currently be modelled directly within Voyant.
Why does my client's taxable dividend income change even though the cash flow shows the same dividend every year?
Question
My client receives a consistent $96,000 annual dividend from their Holding Company, but the Gross Non-Eligible Dividend shown in the tax calculations changes each year. Why?
Answer
The cash flow reflects the total amount distributed to the client, but the tax calculations reflect how that distribution is classified.
For example:
- In the first year, the entire $96,000 may be treated as a taxable non-eligible dividend. Since non-eligible dividends receive a 15% gross-up, the reported taxable amount becomes $110,400.
- In later years, part of that same $96,000 distribution may instead come from the Capital Dividend Account (CDA). Capital dividends are tax-free and are not subject to the dividend gross-up.
- Only the remaining taxable portion is reported as a non-eligible dividend.
As CDA funds are used, the taxable and tax-free portions of the annual distribution can change from year to year, even though the client continues to receive the same total cash flow.
This is why the dividend income shown in the tax details may decrease over time while the annual withdrawal remains unchanged.
How does the Holding Company decide where dividend distributions come from?
Voyant automatically sources dividend distributions using the most tax-efficient order available.
If the Holding Company has available CDA balance, distributions will be sourced from the CDA before taxable dividend accounts. Once the CDA has been exhausted, subsequent distributions will come from taxable dividend accounts and will be taxed accordingly.
This optimisation happens automatically and does not require any user configuration.