Corporate taxation of passive and investment income
53 What is RDTOH? How is it determined? Why does it exist?
Natasha Plamondon
Refundable dividend tax on hand (RDTOH) is a way for corporations to be able to keep track of the taxes that will be eligible for a refund on the dividends. The Eligible and Non-Eligible RDTOH accounts, which show the amount available for refund at the end of the year, are tracked separately as follows:
TO CALCULATE AVAILABLE RDTOH:
| 129(4) “Eligible Refundable Dividend Tax on Hand” | 129(4) “Non-Eligible Refundable Dividend Tax on Hand” |
| 1. RDTOH opening balance | 1. RDTOH opening balance |
| 2. LESS: Eligible Dividend refund from the prior year | 2. LESS: Non-Eligible Dividend refund from the prior year |
| 3. ADD: Part IV tax paid on eligible dividends received | 3. ADD: Refundable Part I Tax: Lessor of:
|
| 4. ADD: Part IV tax paid on non-eligible dividends received. |
When your corporation subsequently pays out dividends, you can claim a dividend refund at the lessor of:
- – 38 1/3% of the dividend paid
- – The RDTOH balance available for that type of dividend.
Example:
Aloha Inc. is a Canadian Controlled Private Corporation with a December 31 year-end. With the information below find Aloha’s 2020 non-eligible RDTOH closing balance and their dividend refund:
- RDTOH balance on December 31, 2019: $29,000
- Air rewards Ltd. non-eligible dividends received (not connected): $16,000
- 2019 dividend refund: $4,500
- Taxable income: $29,500
- Dividend paid: $9,000
- Part I tax payable: $5,450
- Aggregate investment income: $14,250
- Small business deduction: $10,750
Solution:
| Aloha Non-Eligible RDTOH | |||
| Dec 31, 2019, RDTOH Balance | $29,000 | ||
| LESS: 2019 Dividend refund | ($4,500) | ||
| ADD: Refundable Part I Tax: Lessor of: | |||
| – 30 2/3% of Aggregate Investment Income | 30 2/3% X $14,250 | $4,370 | |
| – 30 2/3% X (Taxable Income minus Small Business Deduction etc.) | 30 2/3% X ($29,500 – $10,750) | $5,750 | |
| – Part I Tax Payable | $5,450 | $4,370 | |
| ADD: Part IV Tax Payable: | |||
| 38 1/3% x $16,000 | $6,133 | ||
| RDTOH Dec 31, 2020, Balance | $35,003 |
Dividend Refund:
| Lessor of | |||
| – 38 1/3% of Non-eligible dividends paid | 38 1/3% X $9,000 | $3,450 | |
| – RDTOH balance | $35,003 | ||
| Dividend Refund | $3,450 |
There is a YouTube video on RDTOH that does a great job on explaining this topic if you are having any trouble:
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