There are a number of tax benefits offered to
Canadian-controlled Private Corporations
("CCPCs") and their owners, including
small business deductions, an additional month to pay certain taxes
each year, enhanced investment tax credits and potential refunds
for scientific research and development, and tax deferrals for
employees' taxable benefits arising from the exercise of stock
options. Additionally, the shareholders of CCPCs may also be
entitled to capital gains exemptions of up to $800,000 on the
disposition of their shares (provided such shares are qualified
small business corporation shares).
Not every Canadian business is a CCPC; a corporation is only a
CCPC if it meets all of the following requirements
at the end of the applicable tax year:
(a) it is a private corporation - meaning it is not publicly
(b) it is resident in Canada and was either incorporated in
Canada or resident in Canada from June 18, 1971, to the end of the
applicable tax year;
(c) it is not controlled directly or indirectly by one or more
(d) it is not controlled directly or indirectly by one or more
public corporations (other than a prescribed venture capital
(e) it is not controlled by a Canadian resident corporation that
lists its shares on a designated stock exchange outside of Canada;
(f) it is not controlled directly or indirectly by any
combination of persons described above.
As the world becomes increasing integrated, it is often the case
that a number of shareholders of a given corporation are
non-residents. Traditionally, if the majority of voting shares of a
corporation were held by shareholders resident outside of Canada,
that corporation would automatically be disqualified as a CCPC,
based on the test above.
With the decision of the Tax Court of Canada in Price
Waterhouse Coopers Inc. acting in the capacity of Trustee in
Bankruptcy of Bioartificial Gel Technologies (Bagtech) Inc. v Her
Majesty the Queen
("Bagtech"), it is now possible
for a company to qualify as a CCPC, even if the majority of the
voting shares are issued to non-residents. In order to obtain this
result, the corporation and its shareholders would have to
contractually change the balance of control through the use of a
The Court in Bagtech stated that in determining
control, the test is whether the shareholder has de jure
control (or control in law). The Court then when on to say that
"if an agreement can be considered to be a unanimous
shareholders' agreement (USA) within the meaning of the
Canada Business Corporations Act (the CBCA), it must be
taken into consideration just like the corporation's constating
documents in order to determine de jure control".
Ultimately if the resident shareholders have the ability to elect a
majority of directors (even if such resident shareholders do not
hold a majority of the voting shares of the corporation), de
jure control is deemed to reside with the resident
shareholders, in which event, the subject corporation will be
deemed to be a CCPC.
In light of the Court's decision in Bagtech, a carefully
constructed shareholders' agreement which limits the de
jure control of non-resident shareholders may help to ensure
that the corporation qualifies as a CCPC despite the fact that more
than 50% of the voting shares of the corporation may be owned by
non-residents. Once the corporation qualifies as a CCPC the
business and its shareholders can focus their efforts on doing what
is necessary to ensure that they are in a position to take
advantage of the tax benefits offered to Canadian Controlled
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).