What’s the difference between RDTOH and CDA?
RDTOH (Refundable Dividend Tax on Hand) is a notional tax account tracking refundable Part I or Part IV tax the corporation has paid; the CRA refunds $38.33 for every $100 of taxable dividend the corporation later pays. CDA (Capital Dividend Account) is a notional account of the non-taxable half of realized capital gains plus tax-free life-insurance proceeds; a corporation can elect under s. 83(2) to pay a capital dividend that is tax-free to the recipient.
RDTOH split into two pools since 2019: Eligible RDTOH (ERDTOH) is refunded on eligible dividends paid; Non-Eligible RDTOH (NERDTOH) is refunded on non-eligible dividends paid. Refund rate: $1 refund per $2.61 of dividend paid, effectively 38.33% of the dividend up to the pool balance. Purpose: preserve integration on passive investment income earned inside the corporation.
CDA mechanics under s. 89(1): non-taxable half of capital gains is added; non-taxable half of capital losses is deducted; life insurance proceeds in excess of ACB of the policy are added; capital dividends elected are deducted. To pay: file Form T2054 before or on the date the dividend becomes payable, with a directors’ resolution supporting the election. Late-filed election attracts a penalty under s. 184(3).
Example: an Ontario Opco realized a $200,000 capital gain in 2026. Taxable half ($100,000) is corporate income; non-taxable half ($100,000) is credited to CDA. The corporation can elect a $100,000 capital dividend and pay it tax-free to the shareholder, effectively passing through the tax-free half of the gain.
Note: An excess capital dividend triggers a 60% Part III tax under s. 184(2). Confirm the CDA balance immediately before filing T2054; a stale CDA calc is a common source of Part III exposure.
Source: canada.ca â Capital dividend account
— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA
Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.