Line 290 - Did the corporation meet the definition of substantive CCPC under subsection 248(1) at any time in the tax year?
Line 290 - Did the corporation meet the definition of substantive CCPC under subsection 248(1) at any time in the tax year?
Substantive CCPC - Deferral of tax using foreign entities
A private corporation that is a Canadian-controlled private corporation (CCPC) is subject to refundable Part I tax, such that in certain circumstances, it may be advantageous for a private corporation to cease to be a CCPC. Tax planning strategies have developed that rely on a loss of CCPC status before the realization of investment income.
The concept of substantive CCPC eliminates this potential advantage by taxing passive income earned by a substantive CCPC in the same way as if the corporation was a CCPC.
A substantive CCPC is a private corporation (other than a CCPC) that at any time in a tax year:
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is controlled, directly or indirectly in any way, by one or more Canadian resident individuals, or
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would, if each share of the capital stock of a corporation that is owned by a Canadian resident individual were owned by a particular individual, be controlled by the particular individual
Further, a corporation is considered a substantive CCPC when the corporation would be a CCPC but for the fact that a non-resident or public corporation has a right to acquire its shares.
Measures regarding the deferral of tax using foreign entities generally apply to tax years ending after April 6, 2022, except that the measures apply to tax years starting after April 6, 2022, if both the following apply:
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the corporation's first tax year ending after April 6, 2022, is because of an acquisition of control caused by the sale of all or substantially all of the shares of a corporation to an arm's length purchaser before 2023
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the corresponding written purchase and sale agreement was entered into before April 7, 2022
CCPC and substantive CCPC - Deferral of tax using foreign resident corporations
Changes to the foreign accrual property income (FAPI) rules eliminate the tax deferral advantage that was available to CCPCs and their shareholders earning investment income through a controlled foreign affiliate.
These measures, which affect both CCPCs and substantive CCPCs, apply to tax years starting after April 6, 2022.
Aside from the two measures above, substantive CCPCs will continue to be treated as non-CCPCs for all other purposes of the Income Tax Act.
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