# What is CCPC (Canadian-Controlled Private Corporation)?

Country: Canada

A Canadian-Controlled Private Corporation is a private corporation controlled by Canadian residents. CCPCs qualify for the 9% Small Business Deduction rate on active business income, the 35% refundable SR&ED investment tax credit, and the Lifetime Capital Gains Exemption on a qualifying share sale.

## Current rate (Any 12-month fiscal period (corporate))

9% federal corporate tax on first CAD 500,000 active business income (vs. 15% general rate)

## Example

A Toronto software consultancy incorporated as a Canadian company, majority-owned and controlled by Canadian residents, qualifies as a CCPC. It pays 9% federal corporate tax on its first CAD 500,000 of active business income, saving CAD 30,000 vs. the general 15% rate.

## How CCPC (Canadian-Controlled Private Corporation) works in Canada

A Canadian-Controlled Private Corporation (CCPC) is the most tax-advantaged corporate structure available to Canadian small business owners. To qualify as a CCPC, a corporation must meet three conditions: it must be a private corporation (shares not listed on a stock exchange), it must be resident in Canada (incorporated in Canada or managed and controlled in Canada), and it must be controlled by Canadian residents or Canadian citizens (the control test looks at who holds more than 50% of the voting shares).

**The control test**

Control is determined on a share ownership basis. If non-residents or public corporations hold more than 50% of the voting shares, the company loses CCPC status. The CRA looks through corporate ownership structures to identify the ultimate controlling persons. Even a single non-resident shareholder holding 51% of the voting shares causes CCPC status to be lost. This makes CCPC status something to monitor carefully if you bring in foreign investors or co-founders.

**Benefits of CCPC status**

The Small Business Deduction (SBD) reduces the federal corporate tax rate from 15% to 9% on the first CAD 500,000 of active business income. This is the most significant benefit for operating businesses. The SR&ED investment tax credit is 35% (refundable) for CCPCs on the first CAD 3 million of qualifying R&D expenditure, compared to only 15% (non-refundable) for non-CCPC corporations. On a qualifying sale of CCPC shares, the Lifetime Capital Gains Exemption (LCGE) of CAD 1,250,000 can shelter capital gains from tax entirely.

**Passive income grind on SBD**

The SBD business limit of CAD 500,000 is reduced when a CCPC (and its associated corporations) earn adjusted aggregate investment income (AAII) above CAD 50,000 in the prior year. For every CAD 1 of AAII above CAD 50,000, the business limit is reduced by CAD 5. The SBD is fully eliminated when AAII reaches CAD 150,000. This grind was introduced to discourage retaining investment income inside a CCPC as a tax-deferral strategy.

**Deemed year-end on acquisition of control**

When a corporation is acquired and there is an acquisition of control, the Income Tax Act deems the fiscal year to end immediately before the acquisition. This triggers a tax return filing obligation and requires any accrued losses to be considered before the year-end, as certain losses can only be carried forward by the same business.

**Loss of CCPC status**

If a CCPC loses its CCPC status (e.g., because a foreign investor acquires control), the corporation must repay any refundable tax credits received as a CCPC, loses the SBD on future income, and may face other adverse consequences. Planning around CCPC status is essential when bringing in foreign capital.

Source: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/type-corporation.html

## Related terms

- [Small Business Deduction (SBD)](https://accounts-os.com/ca/glossary/small-business-deduction-ca)
- [SR&ED (Scientific Research and Experimental Development)](https://accounts-os.com/ca/glossary/sred-ca)
- [LCGE (Lifetime Capital Gains Exemption)](https://accounts-os.com/ca/glossary/lcge-ca)
- [T2 Corporate Income Tax Return](https://accounts-os.com/ca/glossary/t2-ca)
- [RDTOH (Refundable Dividend Tax on Hand)](https://accounts-os.com/ca/glossary/dividend-refund-ca)