GIFI Balance sheet question - dividends

[vim]

I hope that accounting pros will be able to help with my question that I have in doing my small corporation taxes..

How do you include dividends paid to shareholders into GIFI balance sheet? Can you please confirm that I should:
- in "Retained Earnings" area choose code 3700 (Dividends declared) and in amount area enter -10000 (that is if I paid 10000 in dividends).

Is that right place do specify dividends paid to shareholder? Is there a difference if instead of "3700 (Dividends declared)" I'll use "3701 Cash dividends"? Is it OK to enter this amount as negative?

Thank you very much in advance for your help!

[cperciva]

Yes, that is the correct place to report dividends, and yes, the value should be negative. I got this wrong last year (thought the number should be positive) and got a phone call from CRA... fortunately they accepted my "I'm doing this for the first time and found things a bit confusing" explanation and helped me out. :-)

My understanding is that code 3701 is for monetary dividends (what you and I normally think of when we say "dividends") while 3700 is a broader category which covers stock dividends and other things which accountants call "dividends". If you wrote yourself a cheque for $10,000 and the memo field said "dividend", that's a 3701.

[vim]

Thank you very much cperciva - I really appreciate your confirmation!

I have related question - in the form "S3", "Part 3" and "Part 4" also deals with dividends. I believe "Part 3" is"for purposes of a dividend refund", so this does not apply to me. But "Part 4 - Total dividends paid in the tax year" appears to apply to my case. I am guessing that in the field "500 - Total DIvidends paid in the tax year" I have to specify the same amount "10000", but again I am not sure if that is the case and if that amount should be negative or positive. Anybody have any clue about this?

For accountants - I understand that normally I would have to hire accountant to do this. I was doing that for last 15 years. But last year my accountant made basic errors in preparing my taxes and then was hiding from me for 1 month, as it appears he was not sure how to fix it. So last year I bought TurboTax incorporated and entered my information, made sure it matched his numbers and then fixed my fax and filed it. So I had to learn how to file corporate taxes, even I did not wanted to. I still have few questions, but most of the stuff I am done with.

[cperciva]

On my Schedule 3, I have a number on line 450 and the same number on line 460; the rest is blank. My understanding is that "taxable dividends paid in the tax year to other than connected corporations" means "taxable dividends paid in the tax year, which were not taxable dividends paid to connected corporations", and thus includes taxable dividends paid to an individual.

The T2 guide states that:

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; and
* deemed dividends paid on a small business development bond.

so assuming none of those apply, your dividend "qualifies for a dividend refund" and belongs in Part 3. (And then, following the instructions at the top of Part 4, you don't need to fill out that section.)

At least, that's my interpretation of it, and the CRA didn't tell me I was doing it wrong last year. :-)

The amount of dividend, wherever it appears, is definitely positive. It was only negative on the GIFI sheet because it was actually saying that the dividend was reducing the amount of retained earnings.

And don't feel bad about not hiring an accountant -- I'm not an accountant either, but I do my own tax filings; and I'm glad I do, since it gives me a better understanding of how the tax regulations apply to me.

[vim]

Cperciva,

Thanks again! I also called CRA and asked them same question and they told me too - in schedule 3 lines 450 and 460 and that is it. Thanks again! My T2 is ready