This week’s post profiles Tax Foresight’s recently released CCPC Status Navigator, which determines whether a corporation is a Canadian-controlled private corporation (“CCPC”) for the purposes of the Income Tax Act (the “Act”).CCPC status has important implications for the small business deduction (subsection 125(1)), enhanced and refundable investment tax credits (subsection 127(10.1) and section 127.1), shareholder entitlement to the capital gains exemption (section 110.6), and others.
Determining whether a corporation qualifies as a CCPC can be complex, requiring consideration of a multitude of factors from over 10 different provisions of the Act and applicable case law. Tax Foresight allows you to navigate CCPC issues with clarity and confidence.
The CCPC Status Navigator considers over 15 factors based on the relevant legislative provisions and case law.
Questions are user-responsive, meaning they vary based on previous inputs. A navigation can consist of as few as 1 question or as many as 20 questions, depending on your specific scenario.
Every navigation is supported by a comprehensive explanation and links to relevant resources, including applicable sections of the Act and case law.
The CCPC Status Navigator provides direct links to Tax Foresight’s Residency Classifier and Central Management and Control Classifier, which determine individual residency and corporate residency. These related Classifiers can help you determine whether the corporation meets the “Canadian corporation” requirement and the control requirements for CCPC status.
Navigator questions are organized in four sections, tracking the legal test
For a corporation to be a CCPC, the corporation must be a private corporation, a Canadian corporation, and it must not be controlled, directly or indirectly in any manner whatever, by public corporations, non-residents, or a combination of the two. In accordance with this legal test, Tax Foresight’s CCPC Status Navigator is organized in four sections:
The questions in sections 1 and 2 track the definitions and deeming rules in subsections 89(1) and 250(4) of the Act. Section 3 covers the control requirements described in subsection 125(7). Finally, section 4 checks whether a corporation has filed an election not to be a CCPC under subsection 89(11) or revoked it under subsection 89(12).
The CCPC Status Navigator cuts through ambiguity regarding “control”
The control requirement is often the most complex part of a CCPC determination. Below we explain a few of the sources of complexity and how Tax Foresight provides clarity.
First, the term “control” is not defined in the Act and contemplates both de jure and de facto control. The CCPC Status Navigator provides concise guidance from relevant case law.
Second, the test in paragraph 125(7)(a) is phrased in negative language. What is required is a lack of control by non-residents and public corporations. For example, if a Canadian resident owns 50% of the voting rights of the shares of the corporation at issue, and a non-resident owns the remaining 50%, the control criterion is met. Tax Foresight simplifies the analysis by asking a short series of questions about the ownership structure of the corporation at issue.
Third, the “hypothetical shareholder” rule in paragraph 125(7)(b) of the Act can be difficult to conceptualize. This rule deems all shares owned by non-residents and public corporations to be owned by one person. For example, if a non-resident owns 30% of the voting shares of the corporation at issue and a public corporation owns another 30%, the rule would disqualify the corporation from CCPC status. The CCPC Status Navigator guides you through this hypothetical consideration with clarity.
The CCPC Status Navigator also takes into account other considerations that may affect the “control” analysis such as restrictive Unanimous Shareholder Agreements. Acting as a step-by-step dynamic guide, the Navigator consolidates all components of the legal test in a user-friendly manner.
Want to have access to the CCPC Status Navigator and our other tools? Tax Foresight covers over 20 different tax law issues and is expanding every month. Request a demo to try it yourself and see Tax Foresight in action today.