Loss of CCPC status (Taxation)

Question 1

Loss of CCPC status (Taxation)

Answer 1

• Can occur if the company goes public, is no longer controlled by a Canadian resident, etc.
• Implications:
  o Possible acquisition of control
  o Tax balances  RDTOH pool cannot have any further additions (CDA would still be available if the company continued to be private)
  o Small business deduction only available to CCPC  non-CCPC will be taxed at “high rate”, creating General Rate income pool (“GRIP”) and eligible dividends
  o Shares of the company will no longer be qualified small business corporation (QSBC) shares; not eligible for the lifetime capital gains exemption on the disposal of non-QSBC shares
  o Tax return payments due two months after year-end, instead of three months
  o Stock option taxation less favourable, as employees will not be able to defer the tax benefit arising from the exercise of stock options until the sale of the underlying shares

Reference: ITA 89, 129, 111, 110.6(1), 125