Dividend Paying Investments Held
Corporately
Opportunity: Portfolio dividends in private corporations are only subject to a ‘refundable’ tax at 33.3%. This is
referred to as Part IV tax. Any Part IV taxes paid are credited to a notional account called the RDTOH account
(Refundable Dividend Tax on Hand). These can be recouped when dividends are paid out of the corporation to
the shareholders.
Also added to the RDTOH account is 26 1/3 of investment income (capital gains, interest income) on which
passive investment tax is paid (48.7% tax rate).
Result:
1. The net after tax retained earnings in the corporation are higher due to lower taxes paid, and therefore
can accumulate larger asset values.
2. The tax paid on this investment income is refunded when corporate dividends are paid to the shareholder
of the SBC (Small Business Corporation).
3. Income can be split within the family via dividends taken out at potentially lower tax rates (age of
majority only).
Example:
ABC Co. buys Raymond James stock as a passive investment using retained earnings. Raymond James
distributes a quarterly dividend for $1,000. Eventually the stock is sold for a $2,000 capital gain.
Raymond James dividend:
Tax at 33.3%
Net after tax income:
$1,000
$333 (equals RDTOH credit)
$667
Raymond James capital gain:
Taxable capital gain:
Tax at 48.7%:
Net after tax income:
RDTOH credit (26 1/3%)
$2000
$1000
$487
$1513
$263
TOTAL RDTOH Credits:
$596
Taxes are refunded at a rate of $1 for every $3 of dividends paid out from a corporation. You can only
recoup RDTOH when there is a positive balance in the account.
Dividend paid out from the corporation:
RDTOH refunds credited to the corp.:
$999
$333
This summary is brought to you by Raymond James Financial Planning Ltd. (RJFP) for informational purposes only. Statistics and factual data and other information are from
sources RJFP believes to be reliable but their accuracy cannot be guaranteed. This information is furnished on the basis and understanding that RJFP is to be under no liability
whatsoever in respect there of.
Dividend Paying Investments Held
Corporately
Corporation
RDTOH credits accrued through
dividend paying investments and
dividends from related corps
$1 RDTOH
refund
Investment Dividend
$3 dividend to
shareholder
Generates $1 of RDTOH refund to the
corporation for every $3 paid to the
shareholder
Shareholder
Receives dividends from corporation;
uses dividend tax credit to offset
personal taxes
This summary is brought to you by Raymond James Financial Planning Ltd. (RJFP) for informational purposes only. Statistics and factual data and other information are from
sources RJFP believes to be reliable but their accuracy cannot be guaranteed. This information is furnished on the basis and understanding that RJFP is to be under no liability
whatsoever in respect there of.