Investments in your corporation, or in your own hands?
A dollar of interest, dividends, or capital gains is taxed very differently depending on who earns it. This tool follows your investment income through every layer of the corporate tax structure — Part I and Part IV tax, the refundable pools, the capital dividend account — and out to your hands as dividends, side by side with simply holding the same investments personally.
Enter how much you have invested and the return you expect. Pick the income mix (or build a custom split), then tell us your other personal income so we tax the money correctly in your hands. Everything below updates live.
Adjusted aggregate investment income (AAII): $0. Small-business limit lost: $0. Extra corporate tax this year: $0 (at the 16% gap between the 27% general and 11% small-business rates).
After all tax, what reaches your hands?
The money, layer by layer
| Step | Inside the corp | Held personally |
|---|
Why the gap exists — and when the corp still wins
The tax system tries to make the two paths equal. It gets close on capital gains and Canadian dividends, and lands a few points heavier on interest. But the headline rate isn't the whole story.
Inside the corporation
Works in your favour
- Deferral. Active profit taxed at ~11% leaves far more capital to invest than salary taxed personally at up to 53.5% — a bigger base compounding.
- Capital gains integrate well. Half is tax-free through the capital dividend account; the friction is only a couple of points.
- Eligible dividends are a near wash. Part IV tax is fully refunded when paid out.
- Creditor protection & flexibility on the timing of when you take the money.
Works against you
- Interest is taxed up front at ~50.7%. Refundable, but only when dividends are paid — a real cost while it sits.
- The SBD clawback. Passive income over $50k can push active profit from the 11% rate to 27%.
- Two layers of tax mean a few points of permanent friction versus holding personally.
Held personally
Works in your favour
- One layer of tax at your personal rate — simplest, and slightly cheaper on interest.
- TFSA & RRSP room can shelter the income entirely — not available to the corporation.
- No SBD interaction — nothing touches your company's small-business rate.
Works against you
- You invest after-tax dollars. To get money out of the corp to invest personally, you first pay personal tax — a smaller starting base.
- Top marginal rates apply immediately if you already have high personal income.
- Less flexibility to time income across years or split with family.
The mechanics, in plain language
Why is interest taxed at over 50% inside my corporation?
Investment income in a private corporation doesn't get the low small-business rate. In BC it's taxed at about 50.7% — deliberately high so there's no advantage to parking passive money in a company. Of that, 30⅔ cents per dollar goes into a refundable pool (RDTOH) and comes back to the corporation when it pays a dividend. The remaining ~20% is the permanent corporate cost. Once the after-tax cash is paid out to you as a dividend and you pay personal tax, the system is designed to land near your personal rate — just a few points heavier on interest.
What are RDTOH, ERDTOH and the capital dividend account?
RDTOH (refundable dividend tax on hand) is a notional account tracking refundable tax the corporation has prepaid. It splits in two: non-eligible RDTOH holds the refundable part of tax on interest and taxable capital gains, and is recovered when the corp pays a non-eligible dividend. Eligible RDTOH holds Part IV tax on Canadian portfolio dividends and is recovered on an eligible dividend. Both refund at 38⅓ cents per dollar of dividend paid.
The capital dividend account (CDA) tracks the non-taxable half of capital gains. Your corporation can elect to pay that balance out as a capital dividend — completely tax-free in your hands. It's one of the genuine advantages of realizing gains inside a company.
So is it better to invest inside the corp or personally?
On the final after-tax dollars from a given amount of investment income, holding personally is usually a touch cheaper — most on interest, least on capital gains and eligible dividends. But that ignores the bigger lever: deferral. Active business profit is taxed at ~11% before you invest it, versus paying yourself a salary taxed at up to 53.5% first. Investing the larger after-corporate-tax amount often outweighs the few points of integration friction, especially over long horizons. The right answer depends on your time frame, your TFSA/RRSP room, and whether the small-business clawback is in play. That's the conversation.
What is the small business deduction clawback?
Once a corporation (and its associated group) earns more than $50,000 of adjusted aggregate investment income in a year, its $500,000 small-business limit is reduced by $5 for every $1 over the threshold — gone entirely at $150,000 of passive income. Lost limit means active profit that would have been taxed at 11% is taxed at the 27% general rate instead: a 16-point jump. Toggle it on above to see the dollar cost against your active business income.
What does this tool not account for?
It models BC + federal rates only, a single shareholder, no TFSA/RRSP sheltering, no foreign tax credits on foreign income, and assumes dividends are paid in the same year the income is earned (so the refundable tax comes straight back). It doesn't model the multi-year deferral benefit, income splitting under the TOSI rules, or provincial differences outside BC. It's a clear illustration of the integration mechanics — not a filing. Run your real numbers with us before acting.
Let’s map your investment income properly.
Where to hold investments, when to pay dividends, how to use the capital dividend account, and whether the small-business clawback is costing you — that’s real planning, and it’s worth a focused conversation.
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