How to pay yourself from a holding company in retirement
If you have built up investments inside a Canadian holding company (holdco), retirement is when that money has to come out. How you take it out changes how much tax you pay over your lifetime and how much is left for your estate. This guide covers the ways a passive holdco can pay you, and the order that usually costs the least tax.
The ways money comes out of a holdco
| Payment | Paid out of | Tax for you | Effect on the corporation |
|---|---|---|---|
| Capital dividend | The capital dividend account (CDA): mainly the untaxed half of capital gains | None | Needs an election filed with the CRA (Form T2054) |
| Eligible dividend | The general rate income pool (GRIP), which grows when the holdco receives eligible dividends from Canadian companies | Taxed at the lower dividend rates (grossed up 38%, then the enhanced dividend tax credit) | Gets back refundable tax from eRDTOH: 38 1/3% of the dividend, up to the eRDTOH balance |
| Non-eligible dividend | Other retained earnings, such as interest, foreign income and the taxable half of capital gains | Taxed at the higher dividend rates (grossed up 15%) | Gets back refundable tax from nRDTOH first, then from eRDTOH |
| Return of capital or a shareholder loan | Money you put into the company as share capital or lent to it | None | Reduces the paid-up capital or the loan balance |
A salary needs work done for the company, so a passive holdco in retirement normally pays dividends.
How investment income is taxed inside the corporation
Interest, foreign income and the taxable half of capital gains earned in a holdco are taxed at a high corporate rate: federal 38.67% plus your province's general rate. That is about 47% in Alberta, 50.17% in Ontario and up to about 55% in Prince Edward Island. Of that, 30.67% of the income is refundable: it goes into the non-eligible RDTOH (nRDTOH) and comes back to the company when it pays taxable dividends.
Eligible dividends the holdco receives from Canadian public companies pay a refundable Part IV tax of 38 1/3%, which goes into the eligible RDTOH (eRDTOH). The dividends also add to GRIP, so they can be paid on to you as eligible dividends.
The design (called integration) aims to make the total tax, corporate plus personal, close to what you would pay holding the same investments yourself. The holdco's main advantage is deferral: you choose when the personal tax is paid.
An order that usually costs the least tax
- Capital dividends first, whenever the CDA has a balance. They are tax-free and are not counted as income, so they don't affect the OAS clawback. Capital losses realized later reduce the CDA, which is a reason not to wait.
- Eligible dividends next, up to the GRIP balance. They are taxed at the lower dividend rates and get eRDTOH back for the company.
- Non-eligible dividends when nRDTOH builds up. Only a non-eligible dividend can recover nRDTOH. A holdco with a lot of interest, foreign income or realized gains can end up with refundable tax stuck in nRDTOH if it only ever pays eligible dividends.
Then blend the dividends with your personal accounts. Dividends are grossed up when they are counted as income, so a large eligible dividend raises your net income for the OAS clawback (the recovery tax starts above about $95,300 of net income for July 2026 to June 2027) even though the dividend tax credit lowers your income tax. A year that mixes a moderate dividend with RRIF and TFSA withdrawals often keeps you in a lower bracket than one large dividend.
Draw it down steadily, or leave it in the company?
At death you are treated as selling your shares of the corporation at market value. Without planning, the same growth can be taxed twice: as a capital gain on the shares in your final return, and again when the corporation sells its investments and pays the money out to your estate as dividends. Post-mortem planning (a pipeline, or a loss carry-back under section 164(6) in the estate's first year) can remove most of the double tax, but it has costs and conditions.
For that reason many owners melt down the corporation during retirement: a steady dividend each year that uses the lower personal brackets, rather than a large balance taxed at death. Whether that wins for you depends on your returns, spending, province and the size of your RRSP.
Couples
Paying dividends on shares your spouse owns can split income between you, but the tax on split income (TOSI) rules can tax those dividends at the top rate. Once the business owner turns 65, dividends paid to a spouse are generally exempt from TOSI, to the extent they would have been exempt in the owner's hands. Pension income splitting does not apply to dividends. Check the TOSI position with an accountant before relying on it.
Example (Ontario, simplified). The holdco sells shares with a $100,000 gain. Half the gain, $50,000, is taxable: the corporation pays about $25,085 of tax on it, of which about $15,335 is refundable. The other $50,000 goes into the CDA and can be paid to you as a tax-free capital dividend. The refundable $15,335 comes back when the company later pays you $40,000 of taxable dividends.
Try it with your numbers. The free Holding Company Planner applies this order year by year: capital dividends first, then eligible dividends, with an option to pay non-eligible dividends to recover nRDTOH. Its Corporate Melt-Down Optimizer tests how fast to draw the company down, next to your RRSP, TFSA, CPP and OAS.
Open the Holding Company PlannerGeneral information for planning and education, not financial, tax or legal advice. Corporate tax depends on the company's history; review decisions with an accountant.