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The Cost of Investment Income Earned in a Canadian Controlled Private Corporation

The Cost of Investment Income Earned in a Canadian Controlled Private Corporation



The Cost of Investment Income Earned in a Corporation
15 Jun 2016
Written by: Sheryne Mecklai
Tags: Income Tax

Written by: Sheryne Mecklai, CPA, CA

In each of Canada’s provinces or territories there is a cost of earning investment income in a Canadian Controlled Private Corporation (“CCPC”) and then paying out the remaining funds as dividends to individual shareholders as opposed to the individual earning the investment income directly.

The 2016 changes to the federal income tax rates and the taxation of dividends paid by a CCPC from investment income have made it more costly to earn investment income through a CCPC.

Investment Income Integration Summary, 2016


 

Investment Income earned corporately

Investment income earned personally (%)

Difference
British Columbia........................ 51.89 47.70 4.19
Alberta....................................... 52.19 48.00 4.19
Saskatchewan........................... 52.05 48.00 4.05
Manitoba................................... 56.55 50.40 6.15
Ontario...................................... 55.97 53.53 2.44
Quebec..................................... 55.33 53.97 1.36
New Brunswick......................... 61.40 58.75 2.65
Nova Scotia.............................. 59.70 54.00 5.70
Prince Edward Island............... 57.34 51.37 5.97
Newfoundland and Labrador..................................

52.73

48.30 4.43
Yukon........................................... 53.93 48.00 5.93
Northwest Territories.................... 48.25 47.05 1.20
Nunavut....................................... 49.09 44.50 4.59

Does this mean that all CCPCs should distribute their investments to shareholders?  The answer is no.  There are many non-tax advantages to having investment income earned by a CCPC such as the ability to control timing of distributions to shareholders and to assist in estate planning purposes. 

Please contact Sheryne Mecklai of the Manning Elliott Tax Team with any questions regarding CCPCs and changes to the 2016 federal income tax rates and the taxation of dividends paid by CCPCs.


Sheryne Mecklai is a Partner with Manning Elliott LLP. Sheryne focuses mainly on estate planning and business succession services for Canadian owner-managed businesses in a wide range of industries. Sheryne can be reached at (604) 895-8582 or smecklai@manningelliott.com

The above content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent changes. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.

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