What is a sister corporation?
Sister corporations are corporations that are owned by the same shareholder or group of shareholders.
Corporations can be owned by a single shareholder or a group of shareholders. If two or more corporations have the same shareholders, then they are classified as sister companies. The two corporations do not have shareholdings in each other. But they are owned by the same individual or group of individuals.
Sister corporations are usually set up to hold different businesses or assets so that they are not all in one company. For instance, the operations of a business are held in one corporation and the building it operates in is held in another sister corporation. This makes it easier down the road to sell the business operations but retain the ownership of the building. It is also common to have different businesses held in sister corporations. For instance, if a company manufactures widgets and also contracts out the use of or rents the widgets, one corporation will hold the manufacturing operations and a sister corporation will hold the contracting or rental operations.
Having many sister corporations does not increase your small business deduction as this must be split between all associated corporations. Please see FAQ #18 for information on the Small Business Deduction Limit and how it is split between associated corporations.
Sister corporations are also still required to charge sales taxes (HST/GST/PST) on the sale of goods or services between the corporations even though they are associated. The overall tax implications are Nil as one company collects the tax and the other company claims the input tax credit. However, it does affect each corporation’s cash flows.
If you have questions concerning whether or not you have or need a sister company, please contact us for our help on this issue.Download a copy of this issue