knowledge topics

  1. 01 Financial Planning Profession and Financial Services Industry Regulation
  2. 02 Financial Analysis
  3. 03 Credit and Debt
  4. 04 Registered Retirement Plans
  5. 05 Government Benefit Plans
  6. 06 Registered Education and Disability Plans
  7. 07 Economics
  8. 08 Investments
  9. 09 Taxation
  10. 10 Law
  11. 11 Insurance
  12. 12 Human Behaviour

Taxation of a Canadian Controlled Private Corporation

KNOWLEDGE EXPECTED OF: CFP® Professionals Only

  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as a Canadian Controlled Private Corporation (CCPC).1
  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as a private corporation.2
  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as a public corporation.3
  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as an other corporation.4
  • Identify methods by which a business owner may draw income or assets from a Canadian Controlled Private Corporation in which they are a shareholder, such as:
    • Salary or bonus
    • Capital Dividend Account (CDA)
    • Refundable Dividend Tax on Hand Account (RDTOH)
    • Dividends
    • Loans to shareholder
    • Repayment of shareholder loans
    • Repayment of capital
    • Shareholder appropriation
  • Explain the theory of integration that aligns the tax liability of a business owner when receiving dividends or a salary from a Canadian Controlled Private Corporation in which they are a shareholder.
  • Explain the impact of a business owner drawing a salary from a Canadian Controlled Private Corporation in which they are a shareholder.
    • Tax impact to the business owner
    • Tax impact to the corporation
    • Impact on creditor protection on salary
  • Explain advantages to a business owner of drawing a salary from a corporation in which they are a shareholder.
  • Define capital dividend account (CDA).
  • Define capital dividend.
  • Identify elements that a Canadian private corporation may post to its Capital Dividend Account.5
  • Explain the tax impact of receiving a dividend from a Canadian Controlled Private Corporation.
    • To the business owner
    • To the corporation
  • Define a connected Canadian Controlled Private Corporation.
  • Define the Refundable Dividend Tax on Hand (RDTOH).
  • Explain the purpose of the Refundable Dividend Income Tax On Hand.
  • Identify that Canadian Controlled Private Corporations are entitled to the Refundable Dividend Tax on Hand. 
  • Identify the amounts that a Canadian Controlled Private Corporation can post to its Refundable Dividend Tax on Hand notional account, specifically knowledge such as:

    • An addition equal to 26.67% of aggregate investment income from Canadian sources
    • An addition equal to the tax paid on dividends received from a Canadian corporation that is not connected
    • A reduction equal to the amount paid as a dividend out of the Refundable Dividend Tax on Hand account
  • Explain the tax impact of receiving a dividend from a Canadian Controlled Private Corporation.
    • To the business owner
    • To the corporation
    • To a non-resident shareholder
  • Define a shareholder loan
  • Explain the tax impact of a shareholder loan.
    • To the business owner
    • To the corporation
  • Explain the tax impact of a repayment of a loan from a shareholder.
    • To the business owner for principal repayments
    • To the corporation for principal repayments
    • To the business owner for interest
    • To the corporation for interest payments
    • To the business owner upon failure to repay a loan due to the corporation
    • To the corporation upon failure to receive the loan due from the business owner
  • Define paid up capital.
  • Explain the tax impact of a business owner removing an amount up to the value of the paid up capital from a Canadian Controlled Private Corporation for which they are a shareholder.
    • To the business owner
    • To the corporation 
  • Explain the tax impact of a business owner appropriating assets from a Canadian Controlled Private Corporation for which they are a shareholder.
    • To the business owner
    • To the corporation
  • Explain benefits associated with purifying the assets of a Canadian Controlled Private Corporation, such as:
    • Qualification for capital gains deduction
    • Creditor protection
  • Explain methods to purify the assets of a Canadian Controlled Private Corporation’s (CCPC), such as:
    • Paying dividends out of the company to remove passive assets from the corporation sold
    • Using passive assets to pay down debts
    • Using passive assets to purchase business assets
    • Paying salaries or bonuses to remove passive assets
  •  Define a personal service business (PSB).
  • Explain the tax impact of a personal service business (PSB), such as:
    • Higher tax rate
    • Fewer allowable expense deductions
    • Restricted from claiming the small business deduction
  • Define a specified employee.6
  • Explain how loans made to a specified employee may be treated for tax purposes.2
  • Explain the requirements for a specified employee loan to be classed as a loan and not income to the specified employee[8]
  • Explain the purpose of an operating company.
  • Explain the purpose of a holding company.
  • Explain advantages of using a holding company, such as:
    • Creditor protection
    • Estate freeze
    • Purification
    • Income splitting
    • Protection from legal claims against operating income
    • Tax deferral opportunities
  • Explain disadvantages of using a holding company, such as:
    • Additional costs
    • Additional regulatory and reporting requirements
    • Double taxation may occur
    • Ineligible for capital gains exemption
    • Difficulty obtaining credit
  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as a Canadian Controlled Private Corporation (CCPC).[1]
  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as a private corporation.[2]
  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as a public corporation.[3]
  • Identify the Canada Revenue Agency’s requirements for a corporation to qualify as an other corporation.[4]
  • Identify methods by which a business owner may draw income or assets from a Canadian Controlled Private Corporation in which they are a shareholder, such as:
    • Salary or bonus
    • Capital Dividend Account (CDA)
    • Refundable Dividend Tax on Hand Account (RDTOH)
    • Dividends
    • Loans to shareholder
    • Repayment of shareholder loans
    • Repayment of capital
    • Shareholder appropriation
  • Explain the theory of integration that aligns the tax liability of a business owner when receiving dividends or a salary from a Canadian Controlled Private Corporation in which they are a shareholder.
  • Explain the impact of a business owner drawing a salary from a Canadian Controlled Private Corporation in which they are a shareholder.
    • Tax impact to the business owner
    • Tax impact to the corporation
    • Impact on creditor protection on salary
  • Explain advantages to a business owner of drawing a salary from a corporation in which they are a shareholder.
  • Define capital dividend account (CDA).
  • Define capital dividend.
  • Identify elements that a Canadian private corporation may post to its Capital Dividend Account.5
  • Explain the tax impact of receiving a dividend from a Canadian Controlled Private Corporation.
    • To the business owner
    • To the corporation
  • Define a connected Canadian Controlled Private Corporation.
  • Define the Refundable Dividend Tax on Hand (RDTOH).
  • Explain the purpose of the Refundable Dividend Income Tax On Hand.
  • Identify that Canadian Controlled Private Corporations are entitled to the Refundable Dividend Tax on Hand.
  • Identify the amounts that a Canadian Controlled Private Corporation can post to its Refundable Dividend Tax on Hand notional account, specifically knowledge such as:
    • An addition equal to 26.67% of aggregate investment income from Canadian sources
    • An addition equal to the tax paid on dividends received from a Canadian corporation that is not connected
    • A reduction equal to the amount paid as a dividend out of the Refundable Dividend Tax on Hand account
  • Explain the tax impact of receiving a dividend from a Canadian Controlled Private Corporation.
    • To the business owner
    • To the corporation
    • To a non-resident shareholder
  • Define a shareholder loan
  • Explain the tax impact of a shareholder loan.
    • To the business owner
    • To the corporation
  • Explain the tax impact of a repayment of a loan from a shareholder.
    • To the business owner for principal repayments
    • To the corporation for principal repayments
    • To the business owner for interest
    • To the corporation for interest payments
    • To the business owner upon failure to repay a loan due to the corporation
    • To the corporation upon failure to receive the loan due from the business owner
  • Define paid up capital.
  • Explain the tax impact of a business owner removing an amount up to the value of the paid up capital from a Canadian Controlled Private Corporation for which they are a shareholder.
    • To the business owner
    • To the corporation 
  • Explain the tax impact of a business owner appropriating assets from a Canadian Controlled Private Corporation for which they are a shareholder.
    • To the business owner
    • To the corporation
  • Explain benefits associated with purifying the assets of a Canadian Controlled Private Corporation, such as:
    • Qualification for capital gains deduction
    • Creditor protection
  • Explain methods to purify the assets of a Canadian Controlled Private Corporation’s (CCPC), such as:
    • Paying dividends out of the company to remove passive assets from the corporation sold
    • Using passive assets to pay down debts
    • Using passive assets to purchase business assets
    • Paying salaries or bonuses to remove passive assets
  • Define a personal service business (PSB).
  • Explain the tax impact of a personal service business (PSB), such as:
    • Higher tax rate
    • Fewer allowable expense deductions
    • Restricted from claiming the small business deduction
  • Define a specified employee.5
  • Explain how loans made to a specified employee may be treated for tax purposes.5
  • Explain the requirements for a specified employee loan to be classed as a loan and not income to the specified employee>5
  • Explain the purpose of an operating company.
  • Explain the purpose of a holding company.
  • Explain advantages of using a holding company, such as:
    • Creditor protection
    • Estate freeze
    • Purification
    • Income splitting
    • Protection from legal claims against operating income
    • Tax deferral opportunities
  • Explain disadvantages of using a holding company, such as:
    • Additional costs
    • Additional regulatory and reporting requirements
    • Double taxation may occur
    • Ineligible for capital gains exemption
    • Difficulty obtaining credit

Glossary of Verbs (mouse over to see definition)

Read more about the Taxonomy used in the FP-BoK

REFERENCES


  1. http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/typs-eng.html#ccpc
  2. http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/typs-eng.html#prvt
  3. http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/typs-eng.html#thr
  4. https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c1-capital-dividends.html#N101DA
  5. http://www.cra-arc.gc.ca/E/pub/tp/it119r4/it119r4-e.html#P131_20289