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Hi,
For a corporate tax return, when an eligible dividend is paid out and Part IV tax is due, there is an offsetting dividend refund. If there is a dividend refund that is returned by the CRA, how is that dealt with in terms of bookkeeping? Is it fair to keep a contra account to the dividends paid out to show this dividend refund? Is there a specific GIFI code for such a contra account?
Hi SNB,
Thank you for your question. From an accounting and bookkeeping perspective, the CRA dividend refund (i.e., a refund arising from RDTOH) should generally be treated as an income tax refund to the corporation, not as a reduction (contra) of dividends paid.
1) Do not net against dividends paid
Dividends paid are a distribution to shareholders and are not an expense. The dividend refund is a corporate tax attribute outcome and is best presented within the corporation’s income tax accounts, rather than netting it against dividends.
2) Typical bookkeeping entries
When the refund is expected/receivable (based on the T2 calculation):
- Dr. Income taxes receivable / CRA receivable
- Cr. Income tax expense (or record as an income tax recovery)
When the refund is received:
- Dr. Cash
- Cr. Income taxes receivable / CRA receivable
Some firms prefer to credit a separate P&L line (e.g., “Corporate income tax recovery – dividend refund”) for clarity, but it should remain within the income tax section, not dividends.
3) GIFI coding
There is typically no need for a contra-dividend GIFI account for this item. The appropriate mapping is to the standard GIFI categories for:
- Income taxes receivable (balance sheet), and
- Income tax expense / recovery (income statement),
depending on your presentation preference and the financial statement basis.