Canadian-Controlled Private Corporation: Advantages of Incorporation
Contact Neufeld Legal for your incorporation legal work at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
Canadian-Controlled Private Corporation (CCPC) status offers significant tax advantages and incentives designed to support small and medium-sized Canadian businesses.
Lower Corporate Tax Rate (Small Business Deduction)
The most significant benefit is the Small Business Deduction (SBD).
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Reduced Federal Tax Rate: Eligible CCPCs pay a substantially reduced federal corporate tax rate (currently 9%) on their active business income up to a certain limit (currently $500,000 per year) [more on tax rates].
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Tax Deferral: Keeping profits in the CCPC (taxed at the low small business rate) allows the owner-manager to defer personal tax until the funds are withdrawn as salary or dividends, leaving more capital in the business for growth in the meantime [more on tax deferral].
Enhanced Tax Credits for Innovation
CCPCs receive preferential treatment for certain government incentives, particularly for research and development.
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Scientific Research and Experimental Development (SR&ED) Tax Credit: CCPCs can claim an enhanced refundable investment tax credit rate (currently 35%) on their first $3 million of qualified expenditures, which is much higher and more generous than the non-refundable credit available to other corporations. This provides non-dilutive funding for innovation.
Capital Gains Exemption for Shareholders
This advantage is realized by shareholders upon the sale of their company shares.
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Lifetime Capital Gains Exemption (LCGE): Shareholders who are Canadian residents may be able to use the LCGE on the sale of Qualified Small Business Corporation Shares (which are typically CCPC shares). This allows a portion of the capital gain on the sale to be exempt from tax, potentially saving a large amount of tax on the sale of the business [more on LCGE].
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Canadian Entrepreneurs' Incentive: A new incentive is being phased in that reduces the capital gains inclusion rate on a lifetime limit of up to $2 million for the sale of qualifying shares by eligible individuals [more on CEI].
Favourable Treatment for Employee Stock Options
CCPC status provides a benefit that helps recruit and retain employees.
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Tax Deferral on Stock Options: For employees of a CCPC, the tax on the benefit realized from exercising stock options is deferred until the year the shares are sold, rather than being taxed in the year the options are exercised. This can ease the financial burden on employees and align their tax liability with a liquidity event.
Additional Administrative Benefits
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Extended Payment Deadline: CCPCs claiming the SBD are typically allowed an extra month to pay any corporate tax balance owing after their fiscal year-end, compared to other corporations.
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Shorter Reassessment Period: The normal period for the Canada Revenue Agency (CRA) to reassess a CCPC's tax return is generally three years (as opposed to four years for other corporations).
For a corporation to qualify as a CCPC, it must be a private corporation that is resident in Canada and is not controlled, directly or indirectly, by non-residents or public corporations.
So if you are looking to incorporate a new corporation or deal with the corporate legalities impacting your company, contact our law firm to schedule a confidential consultation with a lawyer experienced in the legal intricacies of business incorporation and commercial business development at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or via email at Chris@NeufeldLegal.com.
