RDTOH is a notional account that tracks refundable tax a corporation prepays on its investment income, refunded when it pays taxable dividends to shareholders.
To discourage using a corporation to defer tax on passive investments, Canada taxes a CCPC's investment income at a high rate, but part of that tax is refundable. It is tracked in the RDTOH account and refunded to the corporation when it pays out taxable dividends, restoring the integration between corporate and personal tax.
Since 2019 the account is split into eligible and non-eligible RDTOH, which affects the type of dividend that triggers the refund. RDTOH is a technical but valuable pool: overlooking it can mean leaving a tax refund unclaimed inside the corporation.
A corporation earns $10,000 of investment income and pays a high rate of tax on it, part of which goes into RDTOH. When it later pays a taxable dividend to the owner, a portion of that prepaid tax is refunded to the company.
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