Substantive CCPC
A substantive CCPC is a term in subsection 248(1) of the Income Tax Act for a private corporation that is not a Canadian-controlled private corporation but is controlled by Canadian-resident individuals, or would be if their shares were held by one individual. The CRA says its passive income is taxed as if it were a CCPC and that, apart from that and a measure on foreign entities, it is treated as a non-CCPC.
The CRA explains that the concept removes a deferral advantage by taxing passive income earned by a substantive CCPC in the same way as if the corporation were a CCPC. Aside from that and a measure on deferral using foreign entities, the CRA says substantive CCPCs continue to be treated as non-CCPCs for all other purposes of the Act. See also how a business sale is taxed in Canada.
The definition
It is a private corporation, other than a CCPC, that is controlled, directly or indirectly in any manner whatever, by one or more individuals resident in Canada. It is also one if it would be controlled by a particular individual were each share owned by a Canadian-resident individual owned by that individual. The CRA’s T2 guide adds that a corporation is considered a substantive CCPC when it would be a CCPC but for the fact that a non-resident or public corporation has a right to acquire its shares.
What to check or ask
- Is the target a CCPC or a substantive CCPC, and on what facts?
- Does a non-resident or public corporation hold a right to acquire its shares?
- Could a change in ownership in the deal change its status?
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
- 02Canada Revenue AgencyGovernmentT2 Corporation – Income Tax Guide – Chapter 3: Page 3 of the T2 return
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