What is a Canadian Controlled Private Corporation (CCPC)?
A CCPC is a privately held company, incorporated in Canada, that is not controlled directly or indirectly, in an manner what-so-ever by one or more non-resident persons and is not listed on a designated stock exchange.
CCPC’s benefit from various beneficial tax positions such as lifetime capital gains exemption, small business deduction limit, refundable taxes, and eligible dividends. This makes it desirable to be a CCPC. Therefore, if you are setting up a company or selling shares to someone, you need to be sure what the implications of the new ownership structure will have on the tax position of the corporation. Control is at the centre of the definition of a CCPC. There are two types of control:
Dejure (control by law) – control that rests with ownership. As long as you own over 50% of the voting shares of the company then you have control of the company. If you own less than 50% individually, but together with say, your spouse, own over 50% and you and your spouse always act in unison when it comes to corporate matters, you are then viewed as a controlling group.
Defacto (control by facts) – control by someone who makes the day-to-day decisions and effectively runs the corporation. They do not need to actually own the shares. A good example is a situation where you own 25% of the corporation, your spouse owns another 25% and your business partner and spouse also own 25% each. Your business partner is not a Canadian resident, yet makes all the decisions and effectively runs the corporation. The corporation in this situation is not a CCPC.
The key tax disadvantage of not being a CCPC is that on all corporate profits, tax is charged at 26.5% as opposed to 13.5% on the first $500,000 profit for a British Columbia CCPC.
If you plan to incorporate a company or sell shares of your company, please contact us to determine the tax implications.Download a copy of this issue