# Taxation of income in a CCPC



## PMREdmonton (Apr 6, 2009)

I was just wondering how this works as I have just set up a CCPC for my professional practice. The main reason I set it up is income deferral.

I was just wondering how the following things are taxed:

1. Canadian equity - dividend paid to corporation

Here I presume there is some form of a dividend tax credit that will lessen the tax paid on the dividend received and the tax rate will be the investment income tax rate.

2. Foreign equity - dividend paid to corporation (? how to deal with withholding tax situation)

Here I presume the money will be taxed as investment income for the corporation but I should be able to apply for a credit on the foreign dividend withholding tax

3. Income trust income - here I presume taxed as ordinary income for the company which will be taxed fully as investment income.

4. Interest income - here I presume it will be taxed as investment income at the usual corporate rate.

5. Capital gains - here I presume it will be given the usual 50% deduction and the income received will be taxed at the investment income tax rate

Lastly when the income received is eventually paid out to the shareholders as a dividend I assume that there will be some sort of a credit attached to reflect the income was already taxed through the corporation. D

Do most of you who run a CCPC pay out all the investment income received every year as some form of a dividend? Then pay out any money extra that you need from operating income from the company?

Thanks in advance for anyone who can pass some info onto the newb.


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## FrugalTrader (Oct 13, 2008)

I'm not a tax pro, but my understanding is that public dividends received by your CCPC can flow through to shareholders tax free to the company. There is a bit of a process, but essentially, the shareholders pay the tax on the dividend personally (but get the dividend tax credit).

With capital gains from investments, 50% of the gains would go to the Capital Dividend Account (CDA), which can flow through to shareholders tax free to both the company and the shareholder. The other 50% is taxed at the highest investment rate to the company.


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## OptsyEagle (Nov 29, 2009)

I think you need to own something like 10% or more of the shares to receive dividends tax free in a corporation. So, no tax free dividends and no dividend tax credit and no tax deferral. They are ahead of you on that one.

I believe you pay full corporate tax on the dividends but receive a credit to your "refundable dividend tax on hand account". This credit pretty much refunds the tax back to your corporation when the dividend is paid out to you directly, since you will now be paying the tax personally and obtain the dividend tax credit at that time.

So in a nutshell, you will get some tax deferal on your personal earnings, but you won't get any tax deferral from investments inside your CCPC, unless it becomes a subsiduary company (ownership of 10% or more).


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