The Canadian Income Tax Act definition of CCPC which stands for Canadian Controlled Private Corporation is the key concept in determining favourable income tax rates for small corporations and their shareholders. A CCPC is defined in subsection 125(7) of the Tax Act as a private Canadian corporation, other than one that is controlled by non-residents of Canada. As the name CCPC implies, there are 4 tests that have to be met to fall within the definition. The first is that the entity must be a corporation. Then that corporation has to be Canadian, which means incorporated in one of the provinces or territories or federally. The corporation must be private, so it cannot be listed on a stock exchange. Finally it must be controlled by individuals or other small Canadian corporations rather than public corporations.
Active business income (“ABI”) which is to say income earned by a CCPC from an active business carried on in Canada is eligible for the small business deduction (SBD) under subsection 125(1) of the Tax Act. This means that the overall rate of corporate tax on such income is about 15% in Ontario, and is similarly low in all provinces.
A further tax advantage available to owners of certain CCPCs, those that meet the additional tests to enjoy the status of a Qualifying Small Business Corporation Share (QSBC) is the lifetime capital gains exemption (LCGE) on the sale of shares. This means that some $830,000 of capital gains are exempt from tax on the sale of those types of CCPC shares.
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