Tax for a Canadian Controlled Private Corporation (CCPC)

Tax for a Canadian Controlled Private Corporation (CCPC)

Are you a CCPC owner-manager who wants to learn more about the different types of corporate income and distributions to shareholders? If so, you may find this post useful.

In this post, I will explain some of the key concepts and terms related to CCPC taxation, such as:

• Small Business Deduction (SBD) Income and Limit
• General Income and Eligible Dividends
• Investment Income and Non-Eligible Dividends
• Capital Gains and Capital Dividends
• Foreign Income and Withholding Tax

These are important to know because they affect how much tax your corporation pays and how much tax you pay personally when you receive dividends from your corporation.

Let’s start with the SBD Income and Limit. This is the amount of active business income that your corporation can earn at a lower tax rate, thanks to the small business deduction (SBD). The SBD Limit is $500,000 federally and in most provinces and territories, but it can be reduced if your corporation has taxable capital over $10 million or passive income over $50,000. SBD Income is distributed to you as non-eligible dividends, which are taxed at a higher rate in your hands than eligible dividends.

General Income is the active business income that exceeds the SBD Limit or is not eligible for the SBD. It is taxed at a higher rate in your corporation, but it can be distributed to you as eligible dividends, which are eligible for an enhanced dividend tax credit that reduces your personal tax.

Investment Income is the income from interest, rents, royalties, and foreign income with no foreign withholding tax. It is taxed at a high rate in your corporation, but part of the tax is refundable when dividends are paid. Investment Income is distributed to you as non-eligible dividends.

Foreign Income is the income from foreign sources that is subject to foreign withholding tax, such as dividends from US corporations. It is taxed in the same way as Investment Income, but the foreign tax credit reduces the amount of tax that is refundable. Foreign Income is also distributed to you as non-eligible dividends.

Capital Gains are the profits from the sale of capital assets, such as shares or real estate. Only 50% of capital gains are taxed in your corporation, and the other 50% are not taxed and can be distributed to you as capital dividends, which are tax-free in your hands.

Canadian corporations pay a refundable tax on eligible and non-eligible dividends that they receive from non-connected corporations; this corporate tax is refunded when the corporation distributes dividends.

CCPCs generally cannot obtain refunds of taxes paid on investment income while distributing dividends from income taxed at the general corporate rate. Refunds will continue to be available when “non-eligible dividends” are paid out.

?Tax rates for CCPCs

Province or territory SBD Limit Tax rate on Tax on Tax rate on SBD general income Investment

AB $500,000 11.00% 23.00% 46.67%

BC $500,000 11.00% 27.00% 50.67%

MB $500,000 9.00% 27.00% 50.67%

NB $500,000 11.50% 29.00% 52.67%

NL $500,000 12.00% 30.00% 53.67%

NS $500,000 11.50% 29.00% 52.67%

NT $500,000 11.00% 26.50% 50.17%

NU $500,000 12.00% 27.00% 50.67%

ON $500,000 12.20% 26.50% 50.17%

PE $500,000 10.00% 31.00% 54.67%

QC $500,000 12.20% 26.50% 50.17%

SK $600,000 10.50% 27.00% 50.67%

YT $500,000 9.00% 27.00% 50.67%

As you can see, there are many factors to consider when planning your CCPC tax strategy.

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