Companies that earn passive or investment income such as capital gains, interest or rental income pay corporate tax at a higher rate than the low rate on active business income. To ensure integration of the tax system, part of the Part I tax and where applicable Part IV tax goes into a notional refundable dividend tax account (“RDTOH”) that is refundable when a taxable dividend is paid to the shareholder or to a recipient corporation. The dividend refund also results in a reduction in the RDTOH of the payor corporation.
In order the obtain the dividend refund, the corporate returns of the payor must be filed on a timely basis and no later than 3 years after the end of the year in which the dividend refund arose. Annual filing due dates of the T2 is within 6 months after the end of the taxation year.
There have been a number of court cases on this and it is advisable to always file the annual T2 on time to avoid problems. If the dividend has been paid, the recipient pays tax on the dividend (T5 has been issued), if the dividend refund is disallowed, the combined tax personal and corporate for the year in which the dividend was paid will be considerably higher.
The question would be is if the disallowed dividend refund which is otherwise a reduction of what you would pay on filing, does it stay in the RDTOH account if you filed beyond the 3 year limit.