Tax Considerations

Many private corporations qualify as Canadian-controlled private corporations (CCPC) under the Income Tax Act.

CCPC status is useful to gain access to several important tax advantages, including the:

• Low effective tax rate applicable to the first $500,000 a year in active business income earned in Canada.
• Ability to deduct 50% of certain losses on the disposition of shares of, or debt obligations invested in, CCPCs from other sources of income (called allowable business investment losses).
  Lifetime capital gains exemption on the sale of shares in a qualified small business corporation ($866,912 for each shareholder in 2019). To take advantage of this, the following conditions must be met:
  • at the time of sale, it was a share of a small business corporation held for at least 24 months, and it was owned by you, your spouse or common-law partner, or a partnership of which you were a member
  • throughout that part of the 24 months immediately before the share was sold, while the share was owned by you, a partnership of which you were a member, or a person related to you, it was a share of a Canadian-controlled private corporation and more than 50% of the fair market value of the assets of the corporation were:
    • used mainly in an active business carried on primarily in Canada by the Canadian-controlled private corporation, or by a related corporation
    • certain shares or debts of connected corporations
    • a combination of these two types of assets
  • throughout the 24 months immediately before the share was sold, no one
    owned the share other than you, a partnership of which you were a member or
    a person related to you

This is something to consider when incorporating. We will work with your accountant to find the corporate structure to save you money!