Blog · Tax · July 6, 2026
Timing, dividend type and corporate structure decide whether your corporation's refundable tax actually comes back.
If your corporation has been paying corporate tax on investment income, paying yourself a taxable dividend is usually how the corporation gets some of that tax back. That's the basic idea. But the refund doesn't happen just because there's a balance sitting there — it depends on the amount and type of dividend you pay. And under proposed new rules for some corporate groups, paying a dividend may not, by itself, be enough to trigger the refund anymore.
The real trap isn't forgetting to pay dividends. It's timing, the type of dividend, your corporate structure, and whether triggering personal tax to chase the refund is even worth it.
Tax your corporation pays on investment income sits in a notional account called RDTOH (refundable dividend tax on hand). There are actually two pools: an eligible pool and a non-eligible pool. In general, eligible dividends recover from the eligible pool, and non-eligible dividends recover from the non-eligible pool first (dipping into the eligible pool only after the non-eligible one is used up). The type of dividend you pay decides which pool comes back.
The refund is generally the lesser of your RDTOH balance and 38⅓% of the taxable dividends you pay in the year. So a corporation with $30,000 of RDTOH that pays a $50,000 dividend gets the full $30,000 back, because 38⅓% of $50,000 is more than the balance. Pay only $20,000, and the refund is capped at 38⅓% of that — about $7,667 — with the rest carrying forward to a future year.
Here's the part people miss: recovering that money isn't always worth it. If the only way to get the $7,667 back is a dividend that costs you nearly as much in personal tax, forcing it may accomplish little. Sometimes leaving the balance where it is makes more sense — as long as there's no sale or reorganization on the horizon that would put it at risk.
One more thing: capital dividends don't count. A tax-free capital dividend doesn't recover any RDTOH, because it isn't a taxable dividend to begin with.
Two things complicate all of this: ordinary deferral from not paying enough (or the wrong type of) dividend, and — new under the proposed rules — a situation where the refund gets suspended even though you did pay a dividend.
If you don't pay enough taxable dividends in a year to use up the RDTOH balance, the leftover carries forward. It doesn't disappear. Paying the wrong type of dividend for your balance can leave one pool stranded while the other comes back. Either way, this is the familiar version of the problem — a cash-flow and timing question, and usually fixable by paying the right amount, of the right type, in a later year.
That's a comfortable call in ordinary year-to-year planning. It's a very different call when a sale, wind-up, or reorganization is coming — because then, as the next section covers, a deferral you were relaxed about can become much harder to recover, and in some cases may be lost.
The federal government has proposed new "dividend suspension" rules aimed at corporate groups where a dividend moves to a related corporation whose tax-payment deadline falls later — which lets the group get its refundable tax back sooner than intended. These rules are still proposed — they have not become law yet. If they pass as drafted, they're proposed to apply to the payer corporation's tax years beginning on or after November 4, 2025, so the proposed start date has already passed even though the legislation isn't final.
Here's the idea in plain terms. When one corporation pays a dividend to a related (affiliated) corporation in the same group, and that recipient's tax-payment deadline for the year falls after the payer's, the dividend may not count right away for the payer's refund. In many common structures this comes up because the corporations have different year-ends — but the actual legal test is the payment-deadline timing, not the year-ends themselves.
The suspended refund can be recovered later, but generally only once enough taxable dividends of the matching type work their way out of the group to individuals or to unrelated corporations — usually before the payer's payment deadline for the year. If that doesn't happen in time, the refund can stay locked up until it does.
A few practical points worth knowing (simplifying somewhat, because the detailed rules are more technical than this summary):
There's also a longstanding rule, separate from all of this, that can deny a refund entirely where the whole point of a share structure was to manufacture one. Paying dividends on schedule has never been a guarantee on its own.
This isn't a niche concern. It's squarely relevant if you have:
A simple illustration: Opco pays a dividend up to Holdco, and Holdco's tax-payment deadline falls after Opco's. Under the proposed rules, Opco's refund is suspended unless enough matching dividends move out of the group before Opco's deadline. If a sale steps in first, recovering it can become very difficult.
Worth checking now:
Review before you finalize anything:
Because the proposed start date has already passed, waiting for the rules to become final before dealing with this isn't a safe strategy. The question isn't just "how much RDTOH is in there?" It's also "does it make sense to trigger personal tax now to get it, given the timeline and the overall tax cost?" The proposed rules make getting that sequencing right more important than ever.
If you'd like to review your corporate group's structure, year-ends, and RDTOH position before a transaction is finalized, book a short call with us:
This article is general information only and not tax advice. The rules described are proposed and may change before becoming law, and how they apply depends on your specific facts.