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:
– 30 2/3% of Aggregate Investment Income
– 30 2/3% X (Taxable Income minus Small Business Deduction etc.)
– Part I Tax Payable
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:

https://www.youtube.com/watch?v=Pp6T4BoFefw

Interactive content (Author: Gurpal Yadav, January 2020)

Interactive content (Author: Rumabel Mateo, January 2020)

References:

  • ITA 129(4)
  • https://htkacademy.com/refundable-taxes-part-i-refundable-tax-part-iv-refundable-tax-refundable-dividend-tax-on-hand-rdtoh-dividend-refund/

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