A Canadian Controlled Private Corporation is the most efficient legal structure to minimize taxes payable on business income. Here are the advantages:
- There is a small business deduction that applies to the first $500,000 of “active” business income. Generally speaking, “active” business excludes income from property and capital gains, so items like interest and rent are not active business income. Here are the 2011 rates for a CCPC in Ontario:
|2011 Income Tax Rates for CCPC|
|Active Business||Active Business|
|Jurisdiction||Income < $500,000||Income > $500,000|
In contrast, a businessperson operating as a sole proprietor with taxable net income of $500,000 would be paying a marginal tax rate of 46.41% in 2011.
- There is a $750,000 lifetime capital gains exemption which applies to the sale of shares of a CCPC. Therefore, a businessperson who sells her shares in the business for a profit of $750,000 will not pay tax on the capital gain.
Definition of a CCPC
In simple terms, for a corporation to be considered a CCPC, it must meet all of the following criteria:
- it is a corporation that is resident in Canada.
- it is not controlled directly or indirectly by one or more non-resident persons.
- it is not controlled directly or indirectly by one or more public corporations.
- it is not controlled by a Canadian resident corporation that lists its shares on a designated stock exchange outside of Canada.
- it is not controlled directly or indirectly by any combination of persons described in the three previous conditions.
- no class of its shares of capital stock is listed on a designated stock exchange.
From reading the above, there are clear tax advantages to incorporating a business as a qualified CCPC. Should you wish to discuss your situation with us, please contact us for a consultation.
This post is for information purposes only and should not be interpreted as tax advice or a legal opinion. Please consult with us to review your own particular circumstances.
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