- RDTOH is a running notional balance — not a bank account, just a tracked number on the corporation's tax records — that represents a portion of the tax the corporation already paid on…
- Investment income earned inside a private corporation is generally taxed at a higher rate up front than it would be if it flowed straight into the shareholder's hands — partly to remove…
- Keeping the two pools straight matters because paying the wrong type of dividend can mean the corporation doesn't recover from the pool it intended to draw down.
If your Ontario corporation earns investment income — interest, rent, taxable capital gains, or dividends from a portfolio — part of the tax it pays on that income isn't meant to stay with CRA forever. It sits in a notional account called Refundable Dividend Tax on Hand, waiting to be paid back to the corporation once it distributes dividends to its shareholders.
RDTOH is one of those mechanics that accountants track quietly in the background, but it matters directly to how and when a corporation should pay dividends — and getting the timing wrong can leave real money unclaimed.
What Is RDTOH?
RDTOH is a running notional balance — not a bank account, just a tracked number on the corporation's tax records — that represents a portion of the tax the corporation already paid on certain types of investment income. The corporation can recover some of that tax, but only by paying a taxable dividend to its shareholders and claiming a corresponding dividend refund on its corporate tax return.
Until a dividend is actually paid, the RDTOH balance just sits there. It isn't a refund you receive automatically at year-end.
Why the Mechanism Exists
Investment income earned inside a private corporation is generally taxed at a higher rate up front than it would be if it flowed straight into the shareholder's hands — partly to remove the incentive to park investment income inside a company purely to defer personal tax indefinitely. RDTOH is part of the machinery that tries to correct for that once the money is eventually paid out: some of the extra corporate-level tax comes back to the corporation when it distributes dividends, so the total tax paid — corporate plus personal — lands closer to what an individual would have paid earning that income directly.
Two RDTOH Pools
| Eligible RDTOH | Non-Eligible RDTOH | |
|---|---|---|
| Typically arises from | Portfolio dividends received from other corporations that themselves paid eligible dividends | Corporate tax paid on other investment income — interest, rent, taxable capital gains |
| Recovered by paying | Eligible dividends | Non-eligible dividends |
| Common Ontario example | Holding company receiving public-market dividend income | Operating company or holdco earning interest or rental income |
Keeping the two pools straight matters because paying the wrong type of dividend can mean the corporation doesn't recover from the pool it intended to draw down.
How a Corporation Recovers RDTOH
- The corporation pays a taxable dividend to its shareholders.
- It reports the dividend and claims a dividend refund on its corporate income tax return for that year.
- CRA refunds the applicable portion from the relevant RDTOH pool, up to the balance available.
- Any remaining, unrecovered balance carries forward for future years, tracked separately from year to year.
No dividend, no refund — the balance can sit unrecovered indefinitely if the corporation never distributes it.
Common Mistakes Ontario Corporations Make
- Not tracking eligible and non-eligible RDTOH as two separate pools, and drawing down the wrong one
- Assuming RDTOH is refunded automatically without paying and properly reporting a dividend
- Forgetting to factor RDTOH into dividend timing decisions around a corporate reorganization, sale, or wind-up
- Overlooking RDTOH balances entirely when a corporation changes accountants or bookkeeping systems
RDTOH in Holding Company Structures
RDTOH becomes more layered in a holding company structure, where an operating company pays dividends up to a holdco, and the holdco later decides whether to distribute further to individual shareholders. Dividends flowing between corporations can also interact with a separate mechanism — Part IV tax — designed to prevent indefinite deferral through multiple corporate layers. If your structure involves more than one corporation, RDTOH planning generally needs to be done across the whole chain, not one entity at a time.
Frequently asked questions
Does RDTOH apply to a corporation's regular business income?
Generally no. RDTOH relates mainly to investment-type income — interest, rents, taxable capital gains, and portfolio dividends — rather than active business income already taxed under the small business or general corporate rate rules.
Can a corporation get its RDTOH refunded without paying a dividend?
No. The refund is tied directly to paying a taxable dividend and claiming it on the corporate return for that year. There's no way to access the balance without a dividend flowing to shareholders.
What happens to unused RDTOH if I sell or wind up my corporation?
The outcome depends heavily on how the sale or wind-up is structured. This is exactly the kind of situation where legal and accounting advice should happen before the transaction closes, not after.
Is RDTOH the same thing as the Ontario Employer Health Tax or HST?
No — they're unrelated. RDTOH is a federal income tax mechanism tied to dividend refunds. The Employer Health Tax is a separate Ontario payroll-based tax, and HST is a federal sales tax administered under different rules entirely. Don't assume progress or compliance on one says anything about the others.
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