Budget 2025: New Anti-Deferral Rules on Inter-Corporate Dividends

Andrei Popovici
Nov 8
3 min read

The 2025 Federal Budget introduced a sweeping new rule aimed squarely at deferral strategies using inter-corporate dividends within private-corporate groups. While it sounds technical, the change could have major cash-flow implications for CCPCs and holding structures that rely on dividend refunds.

The Problem Ottawa Is Targeting

Under the current regime, a private corporation that pays a taxable dividend can receive a dividend refund from its refundable dividend tax on hand (RDTOH) balance. Meanwhile, the recipient corporation pays Part IV tax on that dividend—but not until its own balance-due day.

By staggering year-ends between affiliated companies, groups could accelerate the refund while deferring the matching tax—a pure timing benefit that the Department of Finance now wants to close.

The 2025 Solution: “Suspended Dividend Refunds”

Starting with tax years beginning on or after November 4, 2025, the payer’s dividend refund will be suspended whenever:

A taxable dividend is paid to an affiliated corporation, and
The recipient’s balance-due day for that year falls after the payer’s balance-due day.

The refund stays locked until the dividend is eventually paid out of the affiliated chain to either a non-affiliated corporation or an individual shareholder.

In short: no more early refunds if the tax on the other side hasn’t yet come due.

Safe Harbours and Exceptions

The Budget provides three key carve-outs:

Pay-through relief: If each affiliated recipient on-pays a taxable dividend by the payer’s balance-due day, the refund can still be claimed.
Acquisition-of-control relief: Dividends paid within 30 days before a corporate sale (where an acquisition of control occurs) won’t be caught.
Butterfly reorganizations: Dividends arising under paragraph 55(3)(a)/(b) butterflies are exempt.

Example: How the Deferral Disappears

	PayerCo	HoldCo
Year-end	Dec 31 2025	Jun 30 2026
Balance-due day	Mar 31 2026	Sep 30 2026
Dividend paid	Mar 15 2026	—

Before 2025, PayerCo could claim its RDTOH refund right away, while HoldCo’s Part IV tax wasn’t due until September 2026.
Under the new rule, the refund is suspended until HoldCo pays a taxable dividend to a non-affiliated shareholder.
The deferral—six months of tax-free float—is gone.

Practical Takeaways for Private Groups

Align year-ends or implement a formal pay-through policy so that dividends are on-paid before the payer’s balance-due day.
Model cash flow: the suspension could trap tens of thousands of dollars that used to come back as refunds.
Document acquisition-of-control timing carefully when planning pre-closing surplus strips.
Check your butterflies—make sure they clearly fit the statutory exemption.
Expect more scrutiny of inter-corporate dividend timing in CRA reviews once the measure is enacted.

Effective Date

The rule applies to taxation years beginning on or after November 4, 2025. Dividends paid before that date are governed by the existing rules, but expect Finance to watch for aggressive pre-implementation planning.

Our View

This change doesn’t alter the underlying refundable tax system, but it removes its timing elasticity. Corporate groups that depend on quick dividend refunds will need to adjust their internal cash-flow management and consider aligning fiscal year-ends to minimize administrative friction.

Need Help Modelling the Impact?

The information contained in this post is for informational purposes only and is not intended to be used as guidance or financial advice.

At Ascensus CPA, we help CCPC owners and controllers model how these new rules affect their RDTOH, Part IV, and cash-flow timing.