How to Find Investment Tax Amounts on Your T2 Return for the IRR Calculator

Executive Summary

When calculating your corporate investment account's true after-tax IRR, you need to find the actual taxes paid on investment income from your T2 corporate tax returns. Here's what you need to know:

• What to use: Actual tax paid (not net tax after RDTOH), because this is the cash that left your account and isn't compounding
• Where to find it: On your Federal T2 return and provincial return (CO-17 for Québec, CT23 for Ontario)
• Why it matters: The IRR calculator measures actual cash flows, so you need the actual cash outflow (tax paid), not the net amount after accounting for future refunds
• The RDTOH question: RDTOH refunds are future cash inflows (when dividends are paid), not current cash flows, so they don't belong in the IRR calculation

This article provides line-by-line instructions for finding these amounts on your tax returns.

The RDTOH Question: Actual Tax Paid vs. Net Tax

Before we dive into where to find the numbers, let's clarify an important question: Should you use actual tax paid or net tax after RDTOH?

The answer: Use actual tax paid—the full amount.

Here's why:

1. The money is gone: When you pay tax to CRA and MRQ (for Québec corporations), that money leaves your account. It's not compounding. You can't use it. You can't earn income on it. For the period it's with the government, it's lost to your portfolio.

2. RDTOH refunds aren't free money: The "refundable" nature of RDTOH is somewhat illusory. To get the RDTOH refund, you must pay eligible dividends. When you pay dividends, you pay personal tax on those dividends. So you get money back to the corporation, but you pay more tax personally. It's not a true refund—it's a tax integration mechanism that shifts tax from corporate to personal level.

3. IRR measures actual cash flows: The Internal Rate of Return calculation tracks actual money in and money out. The tax you paid is the actual cash that left your account at that moment. Whether you get some back later (via RDTOH refund, with personal tax consequences) doesn't change the fact that the full amount left your account and wasn't compounding.

4. True tax expense to the portfolio: For IRR calculation purposes, the full tax paid is the true expense to your portfolio. The money is gone, it's not working for you, and any future "refund" comes with its own tax cost at the personal level.

Example: If your corporation paid $50,000 in tax on investment income in 2020, use $50,000 in the calculator. That $50,000 left your account and isn't compounding. Even if $30,000 of that is technically "refundable" through RDTOH, you'd need to pay dividends (triggering personal tax) to get it back. The full $50,000 is the true tax expense to your portfolio for that period.

Where to Find Investment Tax Amounts: Federal T2 Return

The Federal T2 return is the foundation. Here's where to find investment-related tax amounts:

Step 1: Locate Investment Income

Schedule 7 - Investment Income:

• This schedule shows all investment income (interest, dividends, capital gains)
• Review this to understand what income generated the taxes you're looking for

Step 2: Find Tax on Investment Income

Schedule 1 - Part I Tax Payable:

• Line 580: Part I tax payable (this is your total corporate tax)
• This includes tax on both active business income and investment income

To isolate investment income tax:

• You'll need to work with your CPA or review the detailed calculation
• The tax on investment income is part of the total Part I tax, but it's not broken out on a single line

Step 3: Understanding the Tax Calculation

The tax on investment income is calculated based on:

• Interest income: Taxed at approximately 50% (varies by province)
• Dividend income: Taxed at approximately 38.33% (varies by province and dividend type)
• Capital gains: 50% inclusion rate, then taxed at approximately 50% corporate rate = ~25% effective rate

Note: The exact rates vary by province and your specific tax situation. The amounts on your return reflect the actual rates that applied to your corporation.

Québec Corporations: CO-17 Return

For Québec corporations, you'll also need to check your CO-17 (Québec corporate tax return):

Investment Income Tax on CO-17

Line 250 - Québec tax on investment income:

• This shows the Québec portion of tax on investment income
• Add this to the Federal portion to get total tax on investment income

Line 280 - Total Québec tax payable:

• This is your total Québec corporate tax
• Includes both active business and investment income tax

Finding the Investment Portion

Similar to the Federal return, the investment income tax is part of the total tax, not broken out separately. You may need to:

1. Review Schedule 7 (Investment Income) to see what investment income was earned
2. Work with your CPA to calculate the tax portion attributable to investment income
3. Or use the total Part I tax if investment income was the primary source of income

Ontario Corporations: CT23 Return

For Ontario corporations, check your CT23 (Ontario corporate tax return):

Investment Income Tax on CT23

Line 580 - Ontario tax on investment income:

• This shows the Ontario portion of tax on investment income
• Add this to the Federal portion to get total tax on investment income

Line 610 - Total Ontario tax payable:

• This is your total Ontario corporate tax
• Includes both active business and investment income tax

Finding the Investment Portion

As with Québec, the investment income tax is typically part of the total tax calculation. You may need to:

1. Review Schedule 7 (Investment Income) to identify investment income
2. Work with your CPA to isolate the tax portion on investment income
3. Or use the total Part I tax if investment income was the primary source

Practical Approach: Working with Your CPA

The most accurate approach is to work with your CPA to identify the exact tax paid on investment income for each year. Here's what to ask:

1. "What was the total tax paid on investment income for [year]?"

   • This should be the actual cash paid, not net after RDTOH

2. "Can you break down the tax by income type?" (optional)

   • Interest income tax
   • Dividend income tax
   • Capital gains tax
   • This breakdown helps you understand the composition, but you can use the total for the calculator

3. "Is this the actual tax paid or net after RDTOH?"

   • Confirm you're getting actual tax paid (the cash outflow)

If You Don't Have Access to Detailed Breakdowns

If you can't get the exact breakdown from your CPA, you can use:

Total Part I tax payable (Federal T2, Line 580) plus provincial tax payable if:

• Investment income was your primary source of income, or
• You want a conservative estimate (this will slightly overstate tax if you had active business income)

Note: This is less precise but may be acceptable for the calculator if investment income dominated your tax situation.

Example: Finding Tax for a 5-Year Period

Note: This example is illustrative only and not a substitute for professional advice.

Scenario: You want to calculate IRR for 2020-2024.

For each year (2020, 2021, 2022, 2023, 2024):

1. Federal T2 Return:

   • Review Schedule 7 to confirm investment income
   • Check Line 580 (Part I tax payable)
   • Work with CPA to identify investment income tax portion

2. Provincial Return (CO-17 for QC or CT23 for ON):

   • Review provincial investment income
   • Check provincial tax payable
   • Work with CPA to identify investment income tax portion

3. Total for Calculator:

   • Federal investment income tax + Provincial investment income tax = Total tax paid for that year
   • Enter this amount in the calculator for the corresponding year

Example amounts:

• 2020: $45,000 (Federal $30,000 + Provincial $15,000)
• 2021: $52,000 (Federal $35,000 + Provincial $17,000)
• 2022: $38,000 (Federal $25,000 + Provincial $13,000)
• 2023: $61,000 (Federal $40,000 + Provincial $21,000)
• 2024: $48,000 (Federal $32,000 + Provincial $16,000)

Enter each amount in the calculator for the corresponding "Year Paid" field.

Common Questions

Q: What if my tax year doesn't match the calendar year?

A: Use the tax year, not the calendar year. The calculator asks for "Year Paid" specifically to accommodate non-calendar tax years. Enter the tax year in which the tax was paid.

Q: What if I paid tax in installments?

A: Use the total tax paid for the tax year, regardless of when installments were paid. The calculator tracks tax by tax year, not by payment date.

Q: Should I include penalties and interest?

A: No. Use only the actual tax on investment income. Penalties and interest are separate and don't reflect the tax cost of your investment returns.

Q: What about RDTOH refunds I've already received?

A: The calculator uses actual tax paid at the time it was paid. If you received an RDTOH refund in a later year, that's a separate cash inflow that would need to be tracked separately (though the current calculator doesn't account for this - it focuses on the tax cost of investment returns).

Q: Can I use net tax after RDTOH instead?

A: No. The calculator uses actual tax paid because that's the true expense to your portfolio. The money left your account and isn't compounding. RDTOH refunds aren't free money—they require paying dividends, which triggers personal tax. The full tax paid is the true cost to your investment returns. Using net tax after RDTOH would understate the real impact of taxes on your compounding returns.

Decision Checklist

Use this checklist to ensure you're finding the right amounts:

• [ ] I'm using actual tax paid (not net after RDTOH)
• [ ] I have my Federal T2 return for each year
• [ ] I have my provincial return (CO-17 for QC, CT23 for ON) for each year
• [ ] I've reviewed Schedule 7 (Investment Income) to confirm investment income
• [ ] I've worked with my CPA to identify the investment income tax portion (or I'm using total Part I tax if investment income dominated)
• [ ] I'm using the tax year (not calendar year) for "Year Paid" in the calculator
• [ ] I'm entering Federal + Provincial tax for each year
• [ ] I understand that RDTOH refunds are future cash flows, not current ones

Fact-Check & Sources

• CRA T2 Guide: T2 Corporation Income Tax Guide
• Revenu Québec CO-17 Guide: CO-17 Guide (French)
• Ontario CT23 Guide: Ontario Corporate Tax Information
• RDTOH Information: See our article on RDTOH & GRIP

Related Articles

• Corporate Investment Account IRR Calculator - Use this calculator to find your true after-tax IRR
• RDTOH & GRIP for Owner-Managed Corporations - Understand how RDTOH works and when refunds occur
• The SBD "Grind" & Your Corporate Portfolio - Learn how passive income affects your small business deduction
• Tax Optimization Strategies - Services to help optimize your corporate tax structure