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Canadian Holdco vs. Personal Real Estate Tax Analyzer

Compare the true tax cost of earning passive rental income personally versus through a Canadian Holding Company (Holdco). See how the 50%+ corporate tax rate and Refundable Dividend Tax on Hand (RDTOH) actually work.

Inputs

$

Income after all expenses (mortgage interest, property tax, maintenance).

%

Your combined federal & provincial bracket.

💡 The "Small Business" Myth

Many investors assume they can use a corporation to pay the ~12% small business tax rate on rental income. This is false. The CRA considers rental income "passive investment income," taxing it at over 50% upfront to prevent tax deferral advantages.

Option A: Hold Personally

Income is added to your personal tax return.

Net Rental Income
Personal Taxes Paid (%)
Net Cash Retained

Option B: Hold in a Corp

Passive income taxed at corporate rates.

Net Rental Income
Upfront Corp Tax (%)
Cash Retained in Corp

The Integration Mechanism (RDTOH)

To prevent double taxation when the corporation eventually pays you the retained cash as a dividend, the CRA refunds a portion of the upfront corporate tax via Refundable Dividend Tax on Hand (eRDTOH/nRDTOH).

Dividend Payout Scenario

Dividend Paid to You
RDTOH Refunded to Corp
Personal Tax on Dividend (Est. %)
Final Personal Cash
Difference between holding personally vs fully paying out via Corp (Tax Integration).
*In a perfectly integrated tax system, the final cash should be nearly identical.

So, should you use a Holdco?

  • If you are transferring personal money to buy: Usually NO. The high upfront passive tax rate (50%+) leaves you with less cash inside the corporation to reinvest or pay down principal compared to holding it personally (unless you are already at the absolute highest personal marginal rate).
  • If the money is already inside a corporation: Usually YES. If you earned active business income inside a corp (taxed at ~12%), transferring it personally to buy real estate would trigger massive personal dividend tax. It's often better to buy via a Holdco to invest the pre-personal-tax dollars, despite the high passive rates on the subsequent rental income.
  • Asset Protection: Holdcos provide a layer of liability protection between the property and your personal assets.

*Disclaimer: This tool provides general estimates. Corporate tax integration is complex and depends on specific active/passive allocations, GRIP pools, and specific provincial budgets. Always consult a CPA.

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