As an Ontario resident in the top tax bracket, writing a cheque to the CRA is a painful annual ritual. But there is a fundamental difference between the tax you pay personally and the tax you pay through a corporation. 

When you earn investment income personally, the tax you pay is a sunk cost. It is gone forever. 

When you earn that same income through a corporation, a massive portion of the tax you pay is actually a deposit. It sits in a special account, waiting to be refunded to you. 

This mechanism—known as Refundable Dividend Tax on Hand (RDTOH)—is one of the most powerful, yet misunderstood, advantages of incorporation. Here is why earning $100,000 of investment income in a corporation gives you a chance to recover your money, while earning it personally guarantees you lose it. 

The Personal Penalty: “Lost Forever” 

When you earn interest, dividends, or capital gains in your personal name, the tax calculation is brutal and final. 

In 2025, for every $100,000 of interest income you earn personally at the top bracket, the CRA takes approximately $53,530. 

• You keep: $46,470 
• The Government keeps: $53,530 
• Chance of recovery: 0% 

That $53,530 is not a holding fee or a deposit. It is an expense. You will never see those dollars again. They cannot be invested, they cannot be split with family, and they cannot be recovered in a lower-income year. 

The Corporate Solution: The “Refundable” Advantage

The corporate tax system works differently. While the headline tax rate on passive income looks high (approx. 50.17% in Ontario), the government admits that it is effectively over-taxing you upfront to prevent you from deferring tax indefinitely. 

To balance this, they created the “Refundable Tax” or “RDTOH” account. 

When your corporation pays tax on investment income, a specific portion of that tax is flagged as “refundable.” It goes into a notional account with the CRA—think of it as a forced savings account that you can unlock later. 

How It Works on $100,000 of Interest Income: 

1. Upfront Tax: The corporation pays roughly $50,170 in tax. 
2. The “Deposit”: Included in that payment is $30,670 that is credited to your RDTOH account.
3. The Real Cost: The “permanent” tax—the amount the government actually keeps—is only about $19,500. 

The remaining $30,670 is sitting there, waiting for you. 

How You Get It Back through RDTOH

You recover these taxes by paying dividends. The moment your corporation declares a taxable dividend to its shareholders (you or your family), the CRA releases the funds from the RDTOH account back to the corporation. 

The Refund Rate: For every $1 of taxable dividends you pay out, the corporation gets back 38 cents of refundable tax. 

Why This Changes Everything 

This mechanism transforms “tax” into a “planning tool.” 

• Income Splitting: You can trigger this refund by paying dividends to adult family members (subject to TOSI rules) who are in lower tax brackets. You recover the high corporate tax, and they pay a low personal tax. 
• Retirement Planning: You can leave the money (and the refundable tax credit) inside the corporation for decades. When you retire and your personal income drops, you pay yourself dividends. The corporation gets its tax refund, and you pay personal tax at a much lower rate than you would have during your working years. 

Side-by-Side: The RDTOH Recovery Potential 

Here is the comparison for $100,000 of Interest Income in 2025: 

Feature	Personal Ownership	Corporate Ownership
Total Tax Paid Upfront	$53,530	$50,170
Amount “Lost Forever”	$53,530	$19,500 (Net Cost)
Amount Recoverable	$0	$30,670 (Sitting in RDTOH)
Flexibility	None. Tax is final.	High. recover tax when you choose.

A Note on RDTOH for Dividends & Capital Gains 

The same logic applies to other income types: 

• Portfolio Dividends: The corporation pays a 38 1/3% tax upfront, but 100% of it is refundable. If you earn dividends personally, you lose ~39% to tax immediately. In a corporation, that tax is fully recoverable. 
• Capital Gains: Not only is half the gain tax-free (via the Capital Dividend Account), but the taxable half also generates refundable tax. 

The Verdict: Don’t Let Your Tax Be a Sunk Cost 

If you earn investment income personally, and are in the top tax bracket, you are accepting that over 53% of your returns (for interest) are the government’s property, effectively closing the door on that wealth. 

By incorporating, you are converting a permanent expense into a recoverable deposit. You maintain control over $30,000+ of tax per $100,000 of income—money that can eventually flow back to your family or fund your retirement. 

To learn more about corporations, please check our article here.

Stop paying taxes that are lost forever. Contact LRK Tax today to discuss how we can structure your investments to maximize your Refundable Dividend Tax on Hand and keep more of your wealth within your control. 

Disclaimer: The tax rates and calculations above are estimates based on 2025 Ontario and Federal tax rules and are for illustrative purposes only. Tax laws are subject to change. Please consult with LRK Tax for advice specific to your situation.