Canadian-Controlled Private Corporation

Contact Neufeld Legal PC for your incorporation legal work at 403-400-4092 or Chris@NeufeldLegal.com

A Canadian-controlled private corporation (CCPC) is a specific type of private corporation in Canada that receives preferential tax treatment and other benefits under the Income Tax Act (the classification being available to both federally-incorporated and provincially-incorporated corporations, i.e., an Alberta provincial corporation). (1)

To qualify as a CCPC, a corporation must meet all of the following conditions at the end of its tax year:

• It must be a private corporation. This means its shares are not listed on a stock exchange.

• It must be a Canadian resident corporation (includes both federally-incorporated and provincially-incorporated corporations). This generally means it was incorporated in Canada or has been a resident in Canada since June 18, 1971.

• It must not be controlled, directly or indirectly, by one or more non-resident persons.

• It must not be controlled, directly or indirectly, by one or more public corporations. It must not have a class of its shares listed on a designated stock exchange.

The concept of "control" is crucial here and includes both legal and "de facto" or factual control, which is the ability to influence key decisions of the corporation.

Being a CCPC offers significant advantages, primarily in the form of tax benefits and incentives. These include:

• Small Business Deduction (SBD): This is one of the most important benefits. A CCPC can claim a reduced federal corporate tax rate on its first $500,000 of active business income. The reduced rate is significantly lower than the general corporate tax rate [more on SBD].

• Enhanced Scientific Research and Experimental Development (SR&ED) Tax Credits: CCPCs are eligible for enhanced, and often refundable, tax credits for qualifying R&D expenditures. This provides a greater financial incentive for innovation compared to non-CCPCs.

• Lifetime Capital Gains Exemption (LCGE): Shareholders of a CCPC may be able to claim a lifetime capital gains exemption on the sale of qualifying shares, which can shield a substantial portion of the gains from tax.

• Employee Stock Options: For arm's-length employees of a CCPC, the taxation of a stock option benefit can be deferred until the employee sells the shares, rather than when the option is exercised. This provides a significant tax deferral advantage for employees.

• Other advantages: CCPCs may have a shorter reassessment period for tax purposes (three years instead of four) and may be eligible for a later deadline for paying corporate taxes and for paying taxes on a quarterly basis.

When your corporate buisness is looking to take advantage of the permissible corporate tax structuring, corporate tax incentives, and other tax-driven mechanims and strategies, contact our law firm  at 403-400-4092 or via email at Chris@NeufeldLegal.com to schedule a confidential initial consultation.

(1) The legislative definition of a CCPC is set out at section 125(7) of the Income Tax Act (Canada).

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