Tax and accounting terms
What Is a CCPC? Canadian Controlled Private Corporations Explained
9%federal tax on the first $500,000 of active business income a CCPC earns each year, where the general federal rate is 15%.
Sources checked October 20263 min read
Key points
- A private corporation resident in Canada that non residents and public companies do not control
- Tested at the end of every tax year and reported at line 040 of the T2
- The status unlocks the small business deduction, the 35% SR&ED credit and the lifetime capital gains exemption on shares
- A change of control or a share listing can end it, and with it the tax year
The tests a CCPC has to meet
A Canadian controlled private corporation, or CCPC, is what most owner managed businesses in Canada are. The tests are applied at the end of each tax year, and the corporation reports the result at line 040 of its T2 return by choosing one of five types: CCPC, other private corporation, public corporation, corporation controlled by a public corporation, or other corporation.
A CCPC has to meet every condition in the list below. Control in these tests is wider than holding most of the votes: the CRA also looks at factual control, meaning any direct or indirect influence that, if exercised, would result in control, so a shareholder agreement or a lender's rights can matter as much as the share register.
- It is a private corporation.
- It is resident in Canada and was either incorporated here or has been resident here continuously since June 1971.
- It is not controlled, directly or indirectly, by non residents, by public corporations, by a Canadian corporation whose shares are listed on a stock exchange outside Canada, or by any combination of them.
- If all the shares those same persons own belonged to one person, that person still could not control it.
- No class of its shares is listed on a designated stock exchange.
What the status is worth
Most of these advantages require the corporation to be a CCPC throughout the year, not just at its end. The small business deduction is also shared among associated corporations and shrinks as passive investment income or taxable capital grows, so CCPC status is where the analysis starts rather than where it ends.
| Advantage | What it means |
|---|---|
| Small business deduction | Federal tax of 9% instead of 15% on the first $500,000 of active business income, with a lower provincial rate on top |
| Enhanced SR&ED credit | A refundable investment tax credit of 35% on qualifying research spending, up to an annual expenditure limit |
| Three months to pay | The balance of tax is due three months after year end instead of two, for a CCPC that claims the small business deduction and stayed within its business limit last year |
| Refundable tax on investment income | Part of the tax paid on interest, rent and similar income comes back when the corporation pays taxable dividends |
| Capital gains deduction | Shares of a qualified small business corporation, which must be a CCPC, can qualify for the lifetime capital gains exemption when the owner sells |
How a corporation stops being a CCPC
Status can change without anyone filing anything. A sale of control to a public company, a controlling shareholder who moves abroad and becomes a non resident, an agreement that gives a non resident factual control, or a stock exchange listing can each end it. The T2 asks for the effective date when the type changed during the year, because several calculations depend on whether the corporation was a CCPC throughout the year, at any time in it, or only at its end.
Becoming or ceasing to be a CCPC can itself end the tax year, and so does an acquisition of control: when a person or group acquires control, the tax year ends immediately before that moment and a return is due for the short year. A transfer of shares to an estate on a death, and in general a transfer to a related person, is not an acquisition of control.
Quick answers
Is every small corporation a CCPC?
Most are, but not automatically. A corporation controlled by non residents or public companies, or with shares listed on a stock exchange, is not a CCPC however small it is.
Can a corporation with a non resident shareholder still be a CCPC?
Yes, as long as non residents and public corporations do not control it, alone or together, in law or in fact. A minority non resident shareholder does not by itself end CCPC status.
Where does a corporation report that it is a CCPC?
At line 040 of the T2 return, which records the type of corporation at the end of the tax year.
Related pages
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Important. This article provides general educational information, not legal or tax advice for a specific business. Rules, administrative policies, rates and deadlines can change. Confirm your facts and current obligations with the responsible government agency and a qualified adviser.