Corporate Taxes

A Canadian Controlled Private Corporation (CCPC) is referred to in the Income Tax Act as a private corporation based in Canada. It can be controlled by one or more people or public corporations (but not prescribed venture capital corporations).  The CCPC’s shares are listed on the stock exchange, within Canada or outside. The stock exchange (defined in Section 248(1) of the Income Tax Act refers to one that has a designation by the Minister of Finance. This is referred to in Section 262 of the Act. A list of designated stock exchanged can be found on the Department of Finance website.

CCPC status provided several special incentives in the Income Tax Act, such as:

• Small business deduction (SBD). This provides a preferential rate for the first $500k of the CCPC’s annual business income, earned in Canada.
• Scientific research and experimental development (SR&ED). This provides an investment tax credit rate on a figure of up to $3 million of expenses, up to the CCPC’s expenditure limit.
• Refundable investment tax credits. This includes SR&ED credits earned at the enhanced ITC rate.
• Deferred recognition of employee stock option benefits.
• Capital gains exemption. This is received if the CCPC qualifies as a small business corporation.
• Reduced period of time for the CRA to reassess a taxation year. This is three years instead of four and it begins the day after sending a notice of original assessment, or notifying that no tax is due that year.
• Pay corporate taxes quarterly (instead of monthly). This is permitted for small CCPCs. Those that claim the SBD need to pay the balance within three months (instead of two), after the end of the tax year.

A further 10.67% of refundable tax is made upon the aggregate investment income of a CCPC. This helps eliminate any tax deferral advantages gained by earning investments via a CCPC. This tax becomes refundable when the CCPC pays dividends to its shareholders. Refundable Part IV tax at a rate of 38.33% is also made upon any portfolio dividend income made by a CCPC. In accordance with federal rules, each of the territories and provinces also provides a small business rate on income, up to the small business limit.

Because a CCPC is viewed as a separate legal entity, it must file a T2 Corporate Income Tax form annually. Completing a T2 is complex – much more so than a personal income tax return so a professional tax advisor should complete it. Corporate income tax should be filed within six months of the end of the fiscal year i.e. if your tax year-end date is the end of March, and then the corporate income tax return has to be filed by end of September. Failure to meet this deadline will result in penalties.