Corporate Tax : Tax tips
A private corporation that is going public should pay out certain Canadian income tax accounts
A private corporation that is going public should pay out certain Canadian income tax accounts, such as the Capital Dividend Account (CDA) and Refundable Dividend Tax on Hand (RDTOH) prior to the public issue since only private corporations can benefit from those accounts.
Offshore (non-Canadian) corporation may be taxable in Canada
Incorporating a business offshore and running business operations through it will not avoid Canadian income taxation if the mind and management of the corporation are based in Canada. That corporation will be considered to be resident in Canada, and fully taxable in Canada.
"Earn Out”
If you sell shares of a business and part of the proceeds is based on future results, this is called an “earn out” and it must be structured properly so as to enjoy favorable Canadian income tax treatment.
Change in Control of a corporation
A new taxation year for Canadian income tax purposes is deemed to have started when a change in control of a corporation takes place. If your corporation is about to undergo a change in control it will shorten the carry-forward period of your unused losses and cause their expiry. It may be possible to devise a mutually beneficial tax plan with the purchaser by billing before the sale for services to be rendered after the change in control in order to generate income to absorb the unused losses before they expire.
Draws from corporation - salary or dividends
You can withdraw income from your corporation in one of 2 ways. You can take a salary or bonus, which is deductible to your corporation. Or you can declare a dividend out of after tax profits.
Assets of a business, or shares of a corporation
Assets of a business, or shares of a corporation, can be transferred on a tax deferred basis by a taxpayer to a corporation by electing under section 85 of the Canadian Income Tax Act. Failure to prepare and file the election can result in a tax liability.
Increase in the cost base of the shares of the parent corporation
In certain limited cases when you wind up a subsidiary into a parent, for Canadian income tax purposes you can receive an increase, or bump, in the cost base of the shares of the parent.
Allocate the purchase price among the different asset types
When buying or selling the assets of a business be sure to allocate the purchase price among the different asset types, as this will determine the values for Canadian income tax purposes.