When rental property is held within a corporation, the capital gains rules are slightly different. Similar to an individual holding a property, only 50% of the capital gain is taxable. The taxable portion of the capital gain is taxed at a corporate tax rate of approximately 46%. When dividends are paid by the corporation to its shareholders, a portion of the corporate tax paid on the capital gain is refunded from the RDTOH account at a rate of $1 for every $3 of dividends paid (i.e. 33%).
The remaining tax free portion (i.e. 50%) of the capital gain is added to the capital dividend account (CDA) account. Dividends paid by the corporation to its shareholders from the CDA account are tax-free.
