How to Move Money From an Opco to a Holdco in Canada
Moving cash from your Opco to your Holdco? Ottawa CPA Majdi Ibrahim explains intercorporate dividends, Part IV tax, RDTOH, and how to do it properly.
By Majdi Ibrahim, CPA | Majdi Ibrahim, CPA Professional Corporation | Ottawa, Ontario
You've built up cash in your operating company. The business is doing well, retained earnings are accumulating, and the money is sitting in the corporate account exposed to the risks of the operating business. You want to move some of it to your holding company — to separate it from operating risk, invest it, or position it for future planning.
This is a common situation, and moving money from an operating company (Opco) to a holding company (Holdco) can absolutely make sense. But the process is not as simple as transferring funds between two bank accounts. It involves corporate law, tax law, bookkeeping, and planning — and doing it wrong can create problems that are expensive to unwind.
This article explains how the transfer typically works, what tax issues arise, what gets missed, and how to think about how much cash to move. We cover the broader question of why business owners use holding companies in our holding company vs. operating company article. This article focuses specifically on the mechanics of moving money between them.
At a Glance
The most common method is an intercorporate dividend — the Opco declares a dividend to the Holdco, supported by proper documentation.
This is not the same as a bank transfer. A dividend must be properly authorized and documented. Cash moving without the appropriate corporate and accounting treatment creates problems.
Intercorporate dividends are often deductible to the receiving Holdco in computing taxable income under section 112, but this depends on the structure and specific tax rules. It is not automatic, and conditions and exceptions apply.
Part IV tax may apply depending on whether the corporations are connected and whether the Opco has RDTOH that gets triggered. The Part IV tax is generally refundable when the Holdco later pays dividends to individual shareholders, but it affects timing and cash flow.
Corporate tax accounts — RDTOH, GRIP, CDA — need to be checked before making the dividend, not after.
Budget 2025 proposed new RDTOH dividend refund suspension rules for connected corporations with staggered tax year-ends. These proposals generally apply to dividends paid in taxation years beginning on or after November 4, 2025, if enacted as proposed. Where affiliated corporations have staggered year-ends, this should be reviewed.
Why Move Money From an Operating Company to a Holding Company?
There are several legitimate reasons business owners want to move cash from their Opco to their Holdco:
Asset protection. Moving cash to a Holdco may help separate excess assets from operating risk, but it is not creditor-proofing by itself. Timing, solvency, existing creditor rights, legal advice, and corporate law restrictions matter. A Holdco does not automatically protect assets from every creditor or legal claim, and professional legal advice is important before treating the Holdco as a shield.
Investment and wealth-building. The Holdco can invest the cash in a diversified portfolio — GICs, bonds, equities, mutual funds — while keeping investment assets separate from the day-to-day operating company. This is one of the reasons established Ottawa business owners use holding companies as investment vehicles.
Separation of active and passive assets. Keeping the Opco "clean" — with only the assets needed to run the business — can simplify future transactions, including a potential sale of the Opco. Excess cash or investment assets in the Opco can affect whether the shares meet the QSBC share tests for the Lifetime Capital Gains Exemption, especially the asset-use tests that look at whether assets are used principally in an active business carried on primarily in Canada.
Future planning. Moving cash to a Holdco positions it for estate planning, future business acquisitions, or eventual payouts to individual shareholders at the right time.
Multiple entities. In multi-business structures, the Holdco often serves as a central hub that receives dividends from multiple Opcos.
The Most Common Method: Intercorporate Dividends
The typical way to move cash from an Opco to a Holdco is for the Opco to declare a dividend to the Holdco.
Here's what that actually means in practice:
The Holdco must own shares of the Opco. The dividend is paid from the Opco to its shareholder — the Holdco. If the Holdco doesn't own shares of the Opco, a dividend can't be declared to it. Share structure and ownership matter before any planning begins.
A dividend must be properly authorized. Directors of the Opco pass a resolution declaring the dividend — the amount, the declaration date, and the payment date. This is not simply a bank transfer decision. It's a corporate action that needs to be documented in the corporation's minute book.
The Holdco generally gets a deduction for the dividend received. Under section 112 of the Income Tax Act, a taxable Canadian corporation can generally deduct dividends received from another taxable Canadian corporation when computing its taxable income. This makes intercorporate dividends deductible in many situations — but the rule has conditions and exceptions, and it should be confirmed for the specific structure.
A note on section 55. In some corporate reorganizations or pre-sale planning, section 55 anti-avoidance rules can apply to intercorporate dividends and convert what appears to be a deductible dividend into a capital gain. This is technical territory and should be reviewed before large dividends, reorganizations, or sale planning — particularly where the dividend is part of a broader corporate transaction.
The Opco's retained earnings are reduced. The dividend is paid from accumulated after-tax earnings. The Opco's books need to reflect this correctly — the cash goes out, the retained earnings go down, and the dividend is properly recorded.
A transfer between corporate bank accounts without the associated corporate documentation and bookkeeping is not a dividend. It's an unexplained intercompany transfer that will need to be cleaned up and may create shareholder loan or other issues.
Connected Corporations and Part IV Tax
One of the most important tax questions in Opco-to-Holdco transfers is Part IV tax.
Part IV tax is a refundable tax that applies when a private corporation receives certain taxable dividends. Whether and how much Part IV tax applies depends on whether the corporations are "connected."
If the Holdco and Opco are connected — very generally, where one controls the other, or where the Holdco owns more than 10% of both the votes and value of the Opco (the exact test should be reviewed) — Part IV tax is calculated differently. The Holdco pays Part IV tax only to the extent that the Opco receives a refund from its own RDTOH account when paying the dividend. In many connected-corporation cases, Part IV tax in the Holdco is tied to the dividend refund received by the Opco. If no dividend refund is triggered in the Opco, Part IV tax may be nil — but the calculation should be confirmed.
If the corporations are not connected — for example, where the Holdco owns a small portfolio interest with less than 10% of votes and value — the full Part IV tax rate of 38.33% applies to the Holdco on the dividend received.
Part IV tax is generally refundable, not a permanent cost. It's added to the Holdco's Refundable Dividend Tax on Hand (RDTOH) account. When the Holdco later pays taxable dividends to its individual shareholders, the RDTOH is refunded. But Part IV tax affects timing and cash flow — the Holdco may owe Part IV tax on its T2 return even though the economic cost is eventually recovered.
Refundable Tax Accounts and Other Corporate Tax Balances
Before declaring the dividend, a CPA should review the relevant tax accounts of both the Opco and Holdco:
RDTOH (Refundable Dividend Tax on Hand): The Opco may have accumulated RDTOH from investment income it earned. Paying a dividend to the Holdco may trigger a refund of some or all of this RDTOH to the Opco — which in turn can trigger Part IV tax in the Holdco. Since 2019, RDTOH is split into two accounts: ERDTOH (eligible) and NERDTOH (non-eligible), with different rules for how each is refunded. Understanding both balances before declaring the dividend is essential.
GRIP (General Rate Income Pool): The GRIP balance determines whether the Opco can designate the dividend as an eligible dividend. Eligible dividends carry more favourable personal tax treatment when eventually paid to individual shareholders. The type of dividend declared — eligible or non-eligible — flows through the structure and affects planning. We cover this in our eligible vs. non-eligible dividends article.
CDA (Capital Dividend Account): If the Opco has a CDA balance — from the non-taxable portion of capital gains, certain life insurance proceeds, or other qualifying amounts — a capital dividend election may allow a capital dividend to be paid tax-free to Canadian-resident shareholders, if the CDA balance is available and the election is properly handled. Capital dividend elections require careful timing and filing. In practice, the CDA balance should be confirmed before the dividend is paid, and the election should be handled before or at the time of payment to avoid late-filing issues and excessive capital dividend tax risk.
Passive income and the small business deduction: Investment income retained in the Holdco can generate AAII that may affect the associated corporate group's access to the small business deduction, including the Opco's access, if the corporations are associated. We cover this in our passive income and small business deduction article.
Corporate Law and Documentation Matter
Intercorporate dividends are not just a tax exercise — they are also corporate law actions.
Before a dividend can be declared, the Opco's directors should confirm:
- The dividend is properly authorized by board resolution
- The corporation is solvent and can legally pay the dividend (under applicable corporate law, a corporation generally cannot pay a dividend if it would result in insolvency)
- The share class and dividend rights support the payment
- The corporate records and minute book are updated
A transfer of cash between corporate bank accounts without this documentation is not a dividend. If CRA reviews the transaction and there is no board resolution, no accounting entry, and no evidence of a properly declared dividend, the characterization of the payment may be challenged.
For any material transfer, coordinating with a corporate lawyer to confirm the minute book is in order is advisable.
How the Transfer Should Show Up in the Books
Good bookkeeping is as important as proper legal documentation. The transfer should be reflected as follows:
In the Opco's books:
- Dividend declared and paid — reduces retained earnings
- Cash transferred — reduces the bank account
- No deductible expense (dividends are paid from after-tax earnings, not deducted as an expense)
In the Holdco's books:
- Dividend income received (for accounting purposes, often recorded as intercorporate dividend income)
- Cash received — increases the bank account
- For tax purposes, the section 112 deduction and any Part IV tax or RDTOH reporting need to be handled on the T2 — accounting income and tax treatment are not the same thing and should not be conflated
Intercompany balances: If the cash transfer happens before the formal dividend is declared, a "due from Opco" or "due to Holdco" balance may sit on the books in the interim. These balances should not sit indefinitely without explanation — they need to be resolved with the proper dividend declaration and bookkeeping.
Common Mistakes When Moving Money From Opco to Holdco
These are the errors we see most often:
- Treating the transfer like a casual bank transfer — moving cash without a dividend resolution, without bookkeeping entries, without any corporate documentation
- Assuming intercorporate dividends are always completely free of tax consequences — they may be deductible in computing the Holdco's taxable income, but Part IV tax and RDTOH interactions still need to be reviewed
- Ignoring Part IV tax — particularly where the Opco has accumulated RDTOH
- Failing to review RDTOH or GRIP before deciding the amount or type of dividend
- Moving cash when the Opco may not be solvent — corporate law generally prohibits dividends that would result in insolvency
- No director resolutions or minute book records
- Unclear share structure — the Holdco must actually own the right class of shares of the Opco to receive a dividend
- Moving too much cash from the Opco — leaving it without sufficient working capital for operations, payroll, or remittances
- Using the Holdco's account for personal spending — a Holdco is a corporation, not a personal account; the same personal-expense issues apply as in any corporation (covered in our personal expenses article)
- Mixing intercompany transfers with shareholder loans — creating a messy intercompany balance that's hard to explain later
How Much Cash Should Stay in the Operating Company?
Moving all excess cash out of the Opco may feel appealing but can cause operational problems. The Opco typically needs to retain enough cash for:
- Payroll — including upcoming pay periods and source deduction remittances
- GST/HST remittances — particularly if the business is a quarterly or monthly filer
- Corporate tax instalments — the Opco's own tax obligations
- Supplier payments and trade credit obligations
- Loan covenants — some bank covenants require minimum liquidity ratios
- Working capital — to fund operations between billing and collection
- Equipment, capital purchases, or lease obligations
- Seasonal fluctuations — where revenue is uneven through the year
- Unexpected costs — equipment failure, legal issues, slow periods
A good practice is to define a target working capital level for the Opco based on its cash flow cycle and obligations — and only transfer to the Holdco what exceeds that level comfortably.
How Majdi Ibrahim, CPA Helps You Move Money From Opco to Holdco
Moving cash from an Opco to a Holdco is common, but it should be planned and documented. The goal is to move money cleanly, preserve flexibility, and avoid creating tax surprises.
Here's what we do:
- Review the corporate structure and share ownership to confirm the Holdco can properly receive a dividend from the Opco
- Review the Opco's retained earnings, cash position, and available distributable amount
- Check RDTOH, GRIP, CDA, and other relevant tax balances in both corporations
- Consider Part IV tax exposure and whether the timing or amount of the dividend should be adjusted
- Flag the Budget 2025 proposed RDTOH suspension rules where staggered year-ends are involved — and confirm whether the proposal has been enacted as of the relevant taxation year
- Coordinate with a corporate lawyer where minute book updates or legal resolutions are needed
- Help determine how much cash should remain in the Opco for working capital and obligations
- Prepare or review the bookkeeping entries in both corporations
- Plan whether money will stay in the Holdco, be invested, or eventually be paid to the individual shareholder — and model the tax consequences of each
- Explain the tax impact in plain English before the transfer is made
What Happens When You Bring This to Majdi Ibrahim, CPA?
Structure review. We confirm the share ownership, the dividend rights, and whether the Holdco is properly positioned to receive the dividend.
Tax account review. We review both corporations' RDTOH, GRIP, CDA, and other balances — so the dividend is declared with full visibility into the tax consequences.
Dividend planning. We help determine the amount, type (eligible vs. non-eligible), and timing of the dividend — including whether a capital dividend should be considered.
Bookkeeping entries. We prepare or review the accounting entries for both corporations so the transfer is clean and properly reflected in the books.
Cash flow and working capital planning. We help you decide how much to move and how much to keep in the Opco — based on your actual cash flow cycle and obligations.
Coordination with legal counsel. Where minute book resolutions or other corporate documentation are needed, we coordinate with your corporate lawyer.
Year-end and future sale planning. We connect the dividend to the broader picture — whether you're building wealth in the Holdco, positioning for a future sale of the Opco, or planning for retirement.
Plain-English explanation. We explain what the transfer costs, what it doesn't cost, and what the options are — before anything is done.
Book a consultation at www.treehousecpa.com
Frequently Asked Questions
Can I just transfer cash from my operating company to my holding company?
No — not without proper documentation and tax treatment. A bank transfer between two corporate accounts is not the same as a legally declared intercorporate dividend. To properly move cash from an Opco to a Holdco, the Opco's directors must declare a dividend, the transfer must be authorized and documented, and the bookkeeping in both corporations must reflect the transaction correctly. An unexplained transfer may be characterized as a shareholder loan or create other complications.
Is a dividend from an Opco to a Holdco tax-free?
Not automatically. The receiving Holdco can generally deduct intercorporate dividends in computing its taxable income under section 112 of the Income Tax Act, which means the dividend is often deductible at the Holdco level. However, Part IV tax may apply depending on whether the corporations are connected and whether the Opco has RDTOH that is triggered. Part IV tax is generally refundable when the Holdco later pays dividends to individual shareholders, but it affects timing and cash flow. The full tax picture needs to be reviewed before the dividend is declared.
What is Part IV tax?
Part IV tax is a refundable tax that applies when a private corporation receives certain taxable dividends. For dividends from non-connected corporations, Part IV tax applies at 38.33% of the dividend received. For dividends from connected corporations, Part IV tax applies only to the extent the paying corporation gets a refund from its own RDTOH. Part IV tax is added to the receiving corporation's RDTOH account and is generally refunded when the corporation pays taxable dividends to its individual shareholders.
Does the holding company need to own shares of the operating company?
Yes. A dividend is paid to shareholders. The Holdco must own shares of the Opco — specifically a share class that carries dividend rights — to receive a dividend from the Opco. Share ownership and corporate structure need to be confirmed before planning begins.
How much money should I leave in my operating company?
Enough to cover your obligations and working capital needs. At minimum, the Opco should retain enough for upcoming payroll and source deductions, GST/HST remittances, corporate tax instalments, supplier payments, loan covenant compliance, and a reasonable buffer for seasonal or unexpected cash flow variation. Moving all excess cash out and then struggling to meet obligations is a common planning mistake.
Can my holding company invest the money after receiving it?
Yes. One of the main reasons business owners use Holdcos is to hold and invest the after-tax cash from the Opco. The Holdco can invest in GICs, bonds, equities, mutual funds, real estate, or other corporations. Investment income earned inside the Holdco is taxed at the investment income rate and is subject to the RDTOH refundable tax regime. Investment income in the Holdco may also affect the associated group's access to the small business deduction if passive income becomes significant. We cover how passive income inside a corporation can affect the active business's small business deduction in our passive income and small business deduction article.
Do I need legal documentation to move money to a Holdco?
Yes. The dividend must be supported by a board resolution of the Opco's directors, recorded in the minute book. The dividend declaration, payment date, and amount should all be documented. For material transfers, coordinating with a corporate lawyer to ensure the minute book is current and the dividend is properly authorized is advisable.
What happens if I moved money between corporations without documenting it?
Undocumented intercompany transfers often end up as unexplained balances between related corporations — sometimes recorded as "due to/from" entries in the books, sometimes left unclassified. These need to be properly characterized and documented. Depending on the facts, the cleanup may involve correcting the intercompany bookkeeping, documenting what the transfer was intended to be, declaring a properly authorized dividend for a current or future transfer, or reviewing whether shareholder loan or other tax treatment applies. The earlier this is addressed, the more options are available.
This article is provided for general informational purposes only and does not constitute personalized tax, legal, or financial advice. Tax rules are subject to change. Please consult a CPA and corporate lawyer for advice specific to your situation.
