Dividend Resolutions: How to Declare a Dividend Properly in Canada

A dividend does not exist until the directors declare it by resolution. Transferring money from the corporate account to your personal account and telling your accountant "that was a dividend" at year-end gets the tax treatment booked — but without a resolution in the minute book, the corporate law step never happened. That gap is easy to fix at declaration time and genuinely painful to reconstruct years later under a CRA review or a buyer's due diligence.

The Solvency Test Comes First

Under section 42 of the CBCA (and equivalent provincial provisions), directors must not declare a dividend if there are reasonable grounds to believe that:

1. The corporation is, or would be after the payment, unable to pay its liabilities as they become due; or
2. The realizable value of the corporation's assets would be less than its liabilities plus stated capital.

This is not a formality. Directors who vote for a dividend that fails the solvency test are personally liable to restore the improperly paid amounts to the corporation. A well-drafted resolution recites that the directors have considered the test and determined the corporation satisfies it — contemporaneous evidence that the board turned its mind to the question.

What the Resolution Must Say

A proper dividend resolution states:

• The class of shares the dividend is declared on (e.g., Class A common shares);
• The amount — either per share or in aggregate;
• The record date (who is entitled) and payment date;
• For tax purposes, whether the dividend is designated an eligible dividend under the Income Tax Act — an eligible-dividend designation must be made in writing at or before the time of payment, and the resolution is the natural place to do it;
• The solvency recital described above.

One resolution per declaration. Corporations that pay quarterly dividends pass four short resolutions a year — or declare the year's dividends in a single resolution with a defined schedule.

Dividends and Owner Compensation

For owner-managers, dividends are half of the classic salary-vs-dividend decision. That choice is tax planning — make it with your accountant. What corporate law adds is the mechanics:

• Dividends follow share classes, not effort. Every holder of the class shares in the declared dividend proportionally. Family corporations often create separate classes (Class A, Class B…) precisely so dividends can be directed class by class — a structure worth revisiting with your advisors in light of the tax-on-split-income (TOSI) rules.
• Holding company structures commonly move profits from the operating company to the holdco by inter-corporate dividend. Each hop needs its own resolution, in the correct corporation's minute book.

The Paper Trail, Start to Finish

1. Directors' resolution declaring the dividend (with solvency recital and any eligible-dividend designation);
2. Payment recorded in the corporation's books consistent with the resolution;
3. T5 slip issued to each recipient for the calendar year;
4. Resolution filed in the minute book with your annual resolutions.

When those four line up, a CRA review of dividend treatment is boring — which is exactly what you want.

Frequently Asked Questions

Can I backdate a dividend resolution?

No. A resolution records a decision when it was made; papering a resolution "as of" a past date the board never actually met or decided is misrepresentation. If a dividend was paid without a resolution, the accepted fix is a ratifying resolution — passed today, acknowledging and confirming the earlier payment — not a backdated one.

Do shareholders vote on dividends?

No. Declaring dividends is a directors' power. Shareholders receive dividends; they do not approve them (absent unusual provisions in the articles or a unanimous shareholder agreement).

What's the difference between eligible and non-eligible dividends?

A tax distinction: eligible dividends (generally paid out of income taxed at the full corporate rate) carry an enhanced dividend tax credit for the recipient, and require a written designation at or before payment. Whether your corporation has the pool to pay eligible dividends is an accountant question; recording the designation is a resolution question.

I paid myself dividends for years with no resolutions. How bad is it?

Common, and fixable. Have ratifying resolutions prepared covering the historical payments and put them in your minute book. If your corporation has years of missing records, a historic minute book rebuild can close the whole gap at once.

How MinuteKeep Helps

MinuteKeep's resolutions generator produces a signature-ready dividend resolution — class, amount, dates, solvency recital — in about a minute, and files it in your corporation's document history alongside your annual resolutions. Your first resolution is free, and Pro covers everything after that.

Generate a dividend resolution now.

This article is general information, not legal or tax advice. Dividend planning should involve your accountant; documenting it should involve resolutions.