knowledge topics
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.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.2
- Identify the Canada Revenue Agency’s requirements for a corporation to qualify as an other corporation.3
- 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
- Refundable Dividend Tax on Hand Account
- 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.
- Define capital dividend.
- Identify elements that a Canadian private corporation may post to its Capital Dividend Account.4
- Explain the tax impact of receiving a capital dividend from a Canadian Controlled Private Corporation.
- To the business owner
- To the corporation
- Define a connected Canadian Controlled Private Corporation.
- Explain the purpose and application of the Small Business Deduction
- Define the Small Business Limit
- Explain the effect of receiving passive income on the Small Business Limit for a Canadian Controlled Private Corporation
- Define the Refundable Dividend Tax on Hand (RDTOH).
- Non-eligible RDTOH
- Eligible 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, 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
- 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)
-
Define
To state exactly the meaning of
-
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
-
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
-
Compare
To note the similarities and differences between two or more things
-
Estimate
To determine an approximate value for
-
Calculate
To find the value using mathematics
-
Convert
To change from one form or purpose to another
-
Evaluate
To reach a conclusion or make a judgement through careful study
-
Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK
REFERENCES
- http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/typs-eng.html#ccpc
- http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/typs-eng.html#prvt
- http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/typs-eng.html#thr
- 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
- http://www.cra-arc.gc.ca/E/pub/tp/it119r4/it119r4-e.html#P131_20289
