RDTOH and Dividend Refund Calculator
Tax on investment income inside a corporation is partly refundable, but only when a dividend is paid out. Work out what goes into each pool, what a dividend releases, how much is trapped, and what the passive income does to your small business limit.
refund this year
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What Goes Into the Pools
| Item | Basis | Eligible Pool | Non-Eligible Pool |
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What the Dividend Releases
| Item | Basis | Amount |
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Passive Income and the Small Business Limit
| Item | Basis | Amount |
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Points That Decide This
What to Do Next
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Disclaimer: Refundable dividend tax on hand is maintained in two pools, eligible and non-eligible, under rules in the Income Tax Act that took their current form for taxation years beginning after 2018. Broadly, the non-eligible pool is credited with the refundable portion of Part I tax on a Canadian-controlled private corporation’s aggregate investment income, together with Part IV tax on dividends received from a connected corporation to the extent that the payer’s dividend refund arose from its own non-eligible pool; the eligible pool is credited with Part IV tax on eligible dividends received from unconnected corporations and with Part IV tax on dividends from connected corporations to the extent the payer’s refund arose from its eligible pool. The refundable portion of Part I tax is the least of several amounts specified in the Act, including a percentage of aggregate investment income, a percentage of taxable income less amounts eligible for the small business deduction and certain foreign tax adjustments, and Part I tax payable; this page applies only the first of those tests and so may overstate the amount where taxable income is low or where foreign taxes are involved. A dividend refund is available on taxable dividends paid, at the prescribed proportion, and the ordering rules require a non-eligible dividend to draw first on the non-eligible pool and permit recourse to the eligible pool thereafter, while an eligible dividend generally draws only on the eligible pool; the refund in any year is limited by the balances in the pools. Part IV tax on dividends received from a connected corporation is computed by reference to the payer’s dividend refund and the recipient’s share of the dividends paid, which this page approximates. Where a CCPC and its associated corporations have adjusted aggregate investment income above a threshold, the business limit is reduced and is eliminated once income reaches an upper figure; Ontario has not paralleled this reduction for provincial purposes, so the federal and Ontario business limits may differ, and the position in other provinces varies. Aggregate investment income and adjusted aggregate investment income are differently defined, and this page does not distinguish between them. All rates and thresholds are editable inputs that should be confirmed for your taxation year. This page is general information, not tax advice.
The Tax Is Prepaid, Not Permanent
Investment income earned inside a corporation is taxed at a high rate, around half in Ontario. That rate exists to remove the advantage of earning investment income through a company rather than personally.
A substantial part of it is refundable, though. It sits in a notional account and comes back when the corporation pays a dividend. So the high rate is really a deposit, and the refund is the mechanism that returns it.
Nothing comes back until a dividend is paid. That is the single most important feature of the system. A corporation can accumulate a substantial refundable balance over many years and never see a cent of it while it retains everything.
Two Pools, and They Are Not Interchangeable
Since the rules were rewritten, the account is split in two. The eligible pool is fed mainly by Part IV tax on dividends from public companies. The non-eligible pool is fed by the refundable tax on interest, rents and capital gains.
Which pool a dividend draws on depends on the type of dividend paid. A non-eligible dividend goes to the non-eligible pool first and can then reach the eligible one. An eligible dividend generally draws only on the eligible pool.
| Source | Which Pool |
|---|---|
| Refundable tax on interest, rent, capital gains | Non-eligible |
| Part IV tax on public company dividends | Eligible |
| Dividends from a connected corporation | Follows the payer’s own refund |
The practical consequence is that a corporation with a large eligible pool and no eligible dividend capacity cannot get at it by paying ordinary dividends. The balance is real, and it is stuck.
A trapped eligible pool is common and easily missed. Paying an eligible dividend requires a general rate income pool balance, which a small business corporation often does not have. The refundable money is on the books and simply cannot be reached without planning.
Part IV Tax Is Immediate and Entirely Refundable
Dividends received from unconnected corporations attract Part IV tax when received, and the whole of it is refundable. It exists to stop a corporation deferring tax by holding shares through a company.
For dividends from a company you control, the Part IV tax follows the payer’s own refund. If paying the dividend did not produce a refund for them, there is generally no Part IV tax for you, which is why intercorporate dividends within a group are often tax-neutral on the way across.
The Passive Income Grind Is a Separate Problem
Beyond a threshold of investment income, the small business limit starts to shrink, and it is gone entirely at a higher figure. That is independent of the refundable tax system and often the larger cost.
Ontario did not follow this federally driven reduction, so a corporation can face a reduced federal limit and a full provincial one at the same time. It is one of the few places where the two returns genuinely diverge.
That grind is why the portfolio sometimes belongs elsewhere. Where investment income is pushing active income out of the small business rate, moving assets to a separate structure or realising gains differently can be worth more than the refund mechanics. It needs working through before the investments grow, not after.
Paying Just Enough to Release It
The refund is a fixed proportion of dividends paid, so there is an amount of dividend that exactly clears the balance. Paying less leaves money in the account; paying more produces no additional refund.
That figure is worth knowing each year, because the dividend decision is usually being made for other reasons anyway. Shaping it so the refundable balance comes out at the same time costs nothing and is frequently overlooked.
What This Calculator Does Not Cover
- The full refundable portion test, which takes the least of several amounts
- Foreign tax credits and their effect on the refundable portion
- The general rate income pool, which governs eligible dividend capacity
- Capital dividend account balances, which come out tax free
- Associated corporations, which share the grind thresholds
- Personal tax on the dividend once it reaches the shareholder
The dividend decision and the refund should be made together. Our holding company tax planning service covers the pool balances, the dividend mix, the eligible dividend capacity and whether the passive income is costing you more in lost small business limit than the refund is worth.
Frequently Asked Questions
Common questions on RDTOH and dividend refunds.
Related Calculators and Guides
More on investments inside a corporation.
Decide the Dividend and the Refund Together
Send us the pool balances, the investment income and what you were planning to pay out. We will work out what the dividend releases, whether anything is trapped in the eligible pool, and whether the passive income is costing more in lost small business limit than the refund is worth.