Lines 530 and 545

Lines 530 and 545

The ERDTOH and NERDTOH accounts only apply to corporations that were private or subject corporations, which are defined on page 95.

CCPCs and substantive CCPCs generate NERDTOH on the refundable portion of Part I tax they pay on investment income. They also generate both ERDTOH and NERDTOH on the Part IV tax they pay on dividends they receive. For any other type of private corporation, only the Part IV tax it pays generates ERDTOH and NERDTOH.

For more information on taxable dividends deductible under section 112 or 113, or subsection 138(6), see Line 320 on page 72.

For information on Part IV tax and instructions to complete Schedule 3, Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation s, see Line 712 on page 95.

All or part of the ERDTOH and NERDTOH at the end of the tax year may be available as a refund if the corporation pays taxable dividends to the shareholders during the tax year.

You can view the eligible and non-eligible refundable dividend tax on hand balances using the "View return balances" service through:

• My Business Account at canada.ca/my-cra-business-account, if you are the business owner

• Represent a Client at canada.ca/taxes-representatives, if you are an authorized representative or employee

To calculate the ERDTOH at the end of the tax year, add the following amounts:

• the ERDTOH balance at the end of the previous tax year (minus any dividend refund from ERDTOH issued to the corporation in the previous year) (line 520 minus amount G)

• any balance of ERDTOH transferred from a predecessor corporation on amalgamation, or from a wound-up subsidiary corporation (line 525)

• Part IV taxes payable (amount Q) on:

  • eligible dividends received from non-connected corporations

  • taxable dividends received from connected corporations to the extent that the payment of the dividends caused a dividend refund to the payer corporation from its ERDTOH

To calculate the NERDTOH at the end of the tax year, add the following amounts:

• the NERDTOH balance at the end of the previous tax year (minus any dividend refund from NERTDOH issued to the corporation in the previous year) (line 535 minus line 575)

• the refundable portion of Part I tax (line 450)

• any balance of NERDTOH transferred from a predecessor corporation on amalgamation, or from a wound-up subsidiary corporation (line 540)

• Part IV tax payable (excluding amounts allocated to ERDTOH) (amount P)

  Note
  A predecessor corporation or a subsidiary cannot transfer any ERDTOH or NERDTOH to a new or parent corporation as a result of an amalgamation or wind-up if, had the predecessor or subsidiary corporation paid a dividend just before the amalgamation or wind-up, subsection 129(1.2) would have applied to that dividend.

Enter the ERDTOH at the end of the tax year on line 530 and at amount BB in the "Dividend refund" area on page 7 of your return. Enter the NERDTOH at the end of the tax year on line 545 and at amount EE in the same area.

References
Subsections 129(4) and 186(5)

Dividend refund

A private corporation's eligible dividends generate dividend refunds from the ERDTOH. Non-eligible dividends generate dividend refunds from the NERDTOH first, and then possibly from the ERDTOH. The calculation effectively requires a private corporation to get a refund from its NERDTOH account before it gets a refund from its ERDTOH account, when it pays a non-eligible dividend.

A dividend refund may arise if you pay taxable dividends to shareholders, and if there is an amount of NERDTOH or ERDTOH at the end of the tax year. Taxable dividends paid include the following:

• stock dividends

• section 84 deemed dividends

• amounts paid as interest or dividends on income bonds or debentures that are not deductible when calculating income

To claim a dividend refund, you must make an actual payment to the shareholders unless the dividend is considered paid (a deemed dividend). This payment can be either in cash or with some other tangible assets. In the latter case, the amount of the dividend is the fair market value of the asset transferred.

A private or subject corporation may be entitled to a dividend refund for dividends it paid while it was a private or subject corporation, regardless of whether it was a private or subject corporation at the end of the tax year. If the corporation loses its private status following a change in control, a deemed year-end occurs. The corporation may be allowed to claim a dividend refund for any taxable dividends paid during the deemed short year.

You have to complete parts 3 and 4 (if they apply) of Schedule 3 to claim a dividend refund.

The dividend refund is equal to the total of the following amounts:

• for eligible dividends, the amount (referred to below as amount 1) that is the lesser of 38 1/3% of the total of all eligible dividends you paid in the year and your ERDTOH account balance at the end of the year

• for non-eligible dividends, the total of the two following amounts:

  • the amount that is the lesser of 38 1/3% of the total of all non-eligible dividends you paid in the year and your NERDTOH account balance at the end of the year

  • the amount that is the lesser of:

    • the amount, if any, by which 38 1/3% of the total of all non-eligible dividends you paid in the year is more than your NERDTOH account balance at the end of the year

    • the amount, if any, by which your ERDTOH account balance at the end of the year is more than amount 1

The total of taxable dividends paid in the tax year that qualify for a dividend refund is equal to the amount on line 460 of Schedule 3. Eligible refundable dividend tax on hand refers to line 530 of the return and non-eligible refundable dividend tax on hand refers to line 545.

Parts 3 and 4 of Schedule 3

The following explains how to complete Parts 3 and 4 of Schedule 3. Parts 1 and 2 are explained on page 96.

If you paid taxable dividends during the year, complete Part 3 to identify taxable dividends that qualify for the dividend refund.

If the amount of dividends paid includes dividends that do not qualify for the dividend refund, you have to deduct these dividends before completing the calculation in Part 3. In this case, complete Part 4 of Schedule 3 to identify dividends that do not qualify.

Dividends that do not qualify are:

• dividends paid out of the capital dividend account

• capital gains dividends

• dividends paid for shares that do not qualify as taxable dividends, because the main purpose of acquiring the shares was to receive a dividend refund [subsection 129(1.2)]

• taxable dividends paid to a controlling corporation that was bankrupt at any time in the year

Complete Part 3 of Schedule 3 to identify a connected corporation that received taxable dividends that qualify for the dividend refund.

If the dividend refund is more than the amount of Part I tax payable for the year, the CRA deducts the excess from any other taxes owed under the Income Tax Act. Any balance left over is available for a refund.

If the total dividends paid during the year is different from the total of taxable dividends paid for the purpose of the dividend refund, complete Part 4 of Schedule 3.

References
Section 129
Subsection 186(5)
Paragraph 129(1)(a)

5