Important Amendments to the Income Tax Act re RDTOH

Recent amendments to the Income Tax Act (Canada) have made fundamental changes to the refundable tax regime applicable in respect of Canadian-controlled private corporations (“CCPCs”) for taxation years of CCPCs that begin after 2018. CCPCs are required to pay a refundable tax of 38 1/3% on investment income (“RDTOH”). The RDTOH is refunded to the CCPC when it pays taxable dividends to its shareholders.

For taxation years of a CCPC that begin after 2018, not all taxable dividends paid by the CCPC will give rise to a refund of RDTOH. There is grandfathering in some cases.

Taxpayers who own shares in such a CCPC through one or more other CCPCs or private corporations should assess whether steps need to be taken before the end of the current taxation year to maximize the amounts that are grandfathered and therefore improve the CCPC’s tax position.

If the foregoing may apply to you, you should contact your tax advisor to determine what steps, if any, can be taken so as to maximize any grandfathering. Please feel free to contact a partner in the Aird & Berlis Tax Group for assistance.