RDTOH & GRIP: Refundable Tax Explained

For Your Client

Your CPA has discussed RDTOH and GRIP with you. This article explains how investment portfolio structure affects these refundable tax mechanisms over time. For tax advice and calculations specific to your corporation, consult your CPA.

What This Means for Your Corporate Investments

When your CPA discusses RDTOH and GRIP, they're explaining how passive investment income and dividend strategies affect your total tax. This article focuses on the investment structure side of that conversation.

The Basic Concepts:

RDTOH: A refundable tax account that tracks taxes paid on passive investment income. When you pay eligible dividends, you can get some of this tax refunded.
GRIP: A pool that tracks income taxed at the general corporate rate. Income in GRIP allows you to pay "eligible dividends" that get better personal tax treatment.

The Investment Connection:

How you structure your corporate investment portfolio determines:

What types of passive income you generate (interest, dividends, capital gains)
How much RDTOH accumulates over time
How much GRIP you have available for eligible dividends

How RDTOH Works (Visual Overview)

RDTOH Accumulates

When corporation earns passive investment income:

Interest income
Dividend income
Capital gains

Part of the tax paid is added to RDTOH

RDTOH Refunds

When corporation pays eligible dividends:

You can receive a refund of some RDTOH

Refund rate: typically ~38%

Example:

If your corporation earns $100,000 in interest income:

Corporate tax paid: ~$50,000
RDTOH added: ~$30,670 (refundable portion)
When you pay $80,000 in eligible dividends, you can get ~$30,664 refunded

Note: Your CPA can calculate your exact RDTOH balance and help you plan dividend strategies.

How GRIP Works

GRIP tracks income that was taxed at the general corporate rate (not the small business rate):

How GRIP Accumulates:

Income taxed at general rate (above small business limit)
Eligible dividends received from other corporations

How GRIP is Used:

Allows you to pay "eligible dividends" to shareholders
Eligible dividends qualify for enhanced personal tax credits
You can only pay eligible dividends up to your GRIP balance

The Investment Connection: If your corporation earns income above the small business limit, that income is added to GRIP, giving you capacity to pay eligible dividends.

How Investment Structure Affects RDTOH and GRIP

Your investment portfolio structure determines what types of income you generate:

Interest-Heavy Portfolio

Generates: Interest income
RDTOH Impact: Creates RDTOH (refundable tax account)
GRIP Impact: No direct impact
Example: GICs, bonds, savings accounts

Dividend-Heavy Portfolio

Generates: Dividend income
RDTOH Impact: Creates RDTOH (refundable tax account)
GRIP Impact: No direct impact (unless receiving eligible dividends)
Example: Dividend-paying stocks, dividend ETFs

Capital Gains-Focused Portfolio

Generates: Capital gains
RDTOH Impact: Creates RDTOH (refundable tax account)
GRIP Impact: No direct impact
Example: Growth-oriented investments, corporate-class funds

Important: This is about structure, not avoiding investing. The goal is to understand how portfolio structure affects RDTOH and GRIP over time.

The Strategic Connection

When you have both RDTOH and GRIP, paying eligible dividends can provide a "triple benefit":

RDTOH refund: You get some corporate tax refunded
GRIP usage: You use your eligible dividend capacity
Lower personal tax: Eligible dividends get better personal tax treatment

Discuss with your CPA: They can help you understand how RDTOH and GRIP work together and optimize your dividend strategy.

What This Means for Long-Term Planning

Over decades, understanding RDTOH and GRIP helps you:

Optimize dividend timing to trigger RDTOH refunds
Choose dividend types (eligible vs. non-eligible) strategically
Coordinate investment structure with tax strategy
Reduce total tax across corporate and personal levels

This is not about avoiding corporate investing. It's about understanding how structure affects refundable tax mechanisms over time.

Next Steps: Coordinate with Your Team

With Your CPA:

Calculate your current RDTOH and GRIP balances
Understand how passive income affects these accounts
Plan dividend timing and type strategically
Coordinate RDTOH/GRIP strategy with your tax strategy

With Your Investment Advisor:

Review your current portfolio structure
Understand what income types you're generating
Explore options for managing RDTOH and GRIP while still growing wealth

The goal: Coordinate tax strategy (CPA) with investment structure (Investment Advisor) for long-term results.

Important Notes

Tax Advice:

This article explains investment structure concepts, not tax advice
For tax calculations and RDTOH/GRIP advice specific to your corporation, consult your CPA
Tax rules are complex and subject to change

Investment Considerations:

Past performance does not guarantee future results
Investment structure is one factor among many
Work with your investment advisor to understand options

Professional Coordination:

This article encourages coordination between your CPA and investment advisor
Tax strategy and investment structure work together
Your CPA remains your primary advisor for tax matters

Full Disclosure

This content is for information and education only. It explains general concepts about how investment structure affects RDTOH and GRIP, but it is not personalized tax, legal, or investment advice.

Tax Considerations:

Tax rules are complex and subject to change
RDTOH and GRIP calculations depend on your specific corporate structure, province, and circumstances
Always consult with a qualified CPA before implementing any tax strategy
Past tax treatment does not guarantee future treatment
Provincial variations in rates and rules may apply
This article does not replace professional tax advice