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CDA/T2054 Calculation mechanics issue


#1

Our firm is transitioning to TaxCycle from Profile currently, and we’re experiencing some difficulties with the CDA Current Year continuity schedule/T2054 election mechanics, and the linking of this worksheet to Schedule 3.

Under the T2054 “required information” section, the field for “Capital dividend account [balance] immediately before this dividend becomes payable” populates without a reduction for the current year capital dividends that were paid (which are reflected on S3). In other words, it calculates as if you’re drafting an election for a late filing by default. Because of the penalties associated with paying out a capital dividend prior to filing the election, this seems to be odd treatment (it should be the exception rather than the norm)?

We’ve tried indicating “Yes” in response to “Calculate amount A from Schedule 3?” under the “Required information” section on the T2054 election to see if this would help, but this doesn’t effect the “Capital dividend account [balance] immediately before this dividend becomes payable” field on the T2054. Instead, it links the S3 value to both “The full amount of the dividend for which this election is made” field on the T2054, and the “Capital dividend paid or payable in the year” field in the CDA Current Year Worksheet continuity above it. This linking to the continuity also seems strange to me - I think the S3 value should always populate in the “Capital dividends paid or payable in the current year” of the continuity worksheet, regardless of what you’re filing on an election, because if the dividends are on S3 you’re indicating they have already been paid.

These calculation mechanics differ from what we’re used to in Profile, which automatically reduces the T2054 field for the “Capital dividend account [balance] immediately before this dividend becomes payable” for the value listed on S3 (i.e. it assumes you’ll be filing the election on time). The T2054 election field for “The full amount of the dividend for which this election is made” is then a manual input field, not linked to the dividends already paid in the year per the continuity, or S3. This treatment is much better suited to the processes at our firm, as we rarely file a late election, and also like to get the T2054 for dividends that will be paid out in the upcoming year executed at our year end meeting with the client.

I’ve talked to support about this and they’ve indicated they are considering changing the way TaxCycle handles these calculations. We thought it would be good to post in the forum as well to see if other users are having similar issues, and if our preference to adopt Profile’s approach as the default (i.e. handling the T2054 calculations with an underlying assumption that the election will be filed on time) would work for others.

Thanks,
Rick


#2

@rick.s

Good afternoon,
Look for an update in about 2 weeks. In that release, there will be a CDA Next Year Worksheet that will allow you to prepare T2054 for the period after the tax year end of the corporation for which you are preparing the T2 return.

Thank you for your patience and we appreciate your conversations/feedback with Tony in our office.
Have a great day!

Steven


#3

Thanks again for your help Steven – much appreciated!


#4

Thanks for this Steven,

It seems this new “CDA Next Year Worksheet” feature that you have been discussing with Rick has been incorporated in the latest Taxcycle update (version 6.0.31052.0).

I don’t know whether there is a glitch in this new worksheet, or if I don’t understand how it is supposed to work, but I am working on a file today with a large CDA balance on ECP that seems to have disappeared when flowing from the current year worksheet to the next year worksheet.

I fully realize that Capital Dividends can not be paid out on the sale of ECP until “after” the year end date. The “CDA Current Year Worksheet” seems to properly take this into consideration. Given this, I would have assumed, in my attached example, the amount from the “current year” line N (2,087,962) might have found its way onto line C on the “CDA Next Year Worksheet”. In my attachment, I would have expected that line C on the “CDA Next Year Worksheet” would have increased to 3,810,166 instead of 1,722.204, that was from previous years.

Consequently, the T2054 included with the “CDA Next Year Worksheet” will not let me pay out more than $828,639 after the year end, whereas I though this figure may have increased to 2,916,601 immediately after the corporation’s year end. My understanding is that 828,639 would have been available to the year end and 2,916,601 would be available on August 1st (first day after the year end).

Am I missing something?

Also… no big deal, but Line K in both forms have a little typo error (balane instead of balance)


#5

@snoplowguy

Thank you for pointing out the typo :flushed: and the calc glitch. You are absolutely right. Amount C in the CDA Next Year Worksheet should be $3,810,166 to take into account the same amount from CDA Current Year Worksheet. I just corrected this and the typo The corrections will be in the next release.

Have a great day.

Steven


#6

Thanks Steven,

It’s a relief for me to learn it’s a software oversight, as I was beginning to second guess myself. I got bit once with a CDA calculation error which involved the way the 1987 ECP “step up” factored into the calculation, so paying out CDA on ECP still makes me a little jittery even though I do quite a few of these.


#7

Thanks again for implementing this so quickly Steven!

A couple minor comments:

There may be a rounding issue in the calculation fields under “Required information”. I keep getting a little glitch on the “CDA Next Year” worksheet after using the quickfix to elect the full amount available where it then thinks I’ve elected an excess amount:

A similar $1 rounding error looks to be occurring on the “CDA Current Year” worksheet, which is bringing in the S3 value:

I haven’t had a chance to see if this same issue is occurring in other files yet, but I did do a fresh carryforward for this file and the issue was still happening.

Also, the new checkbox on the “CDA Current Year” worksheet might have a typo:

Is that supposed to read “…already been filed?”


#8

@rick.s

Hi Rick,

Can you send me the file in question? I sent you an e-courier email to you. Please reply to the email with the problem file attached and I will take a look.
Thank you.

Steven


#9

No problem Steven - just sent some files your way.