Canada CCPC Guide (Canadian-Controlled Private Corporation)

the Canadian-Controlled Private Corporation (CCPC) in Canada. The CCPC is the private corporation that is controlled by the Canadian residents (the "specified shareholders" — the individuals who are the Canadian residents). The CCPC is the most common corporate structure for the small and the medium-sized businesses in Canada. The CCPC benefits include the small business deduction (SBD) at 9% federal on the first $500,000 of the active business income, the refundable dividend tax on hand (RDTOH) — the refund of the Part I refundable tax when the dividends are paid, the capital gains refund on the taxable capital gains, the investment tax credits for the scientific research (the SR&ED), and the lifetime capital gains exemption (LCGE) for the sale of the qualified small business corporation (QSBC) shares (the first $1,016,836 of the capital gain is exempt from the tax for the 2025 year). The CCPC disadvantages — the passive investment income limit (the AII above $50,000 reduces the SBD by $5 for every $1 of the AII above $50,000), the tax on the split income (TOSI) for the family members who receive the dividends from the CCPC, and the CCA restrictions on the passenger vehicles. The CCPC 'associated corporations' — the related CCPCs (the corporations under the common control) must share the $500,000 small business limit. The CCPC tax planning — the "income sprinkling" (the dividend payments to the family members — subject to the TOSI), the "capital gains strip" (the conversion of the retained earnings into the capital gains), the "estate freeze" (the freezing of the value of the CCPC shares for the succession planning), and the "post-mortem planning" (the planning for the deemed disposition on the death of the CCPC shareholder).

CCPC Definition

Private corporation: The corporation that is NOT a public corporation (the corporation whose shares are NOT listed on the TSX, the TSXV, the NYSE, or the other designated stock exchanges). The private corporation is NOT controlled by the public corporation.
Canadian control: The corporation must be "controlled" by the Canadian residents. The "control" is the "de jure control" (the ownership of the majority of the voting shares). The Canadian residents are the individuals who are the Canadian citizens, the permanent residents, or the deemed residents.
Specified shareholder: The shareholder who owns 10%+ of the shares (the "specified shareholder" test — the ownership of the 10%+ of the shares of any class). The specified shareholder must be the Canadian resident for the CCPC status to be maintained.

CCPC Benefits

Small business deduction: 9% federal (reduced from 15%) on the first $500,000 of the ABI. The combined federal+provincial SBD rate is 11% to 13%.
Refundable dividend tax on hand (RDTOH): The refundable tax on the investment income (the Part I refundable tax at 30.67% of the AII). The RDTOH is refunded when the CCPC pays the dividends (the $1 refund for every $5 of the dividends paid).
Capital gains refund: The refund of the Part I tax on the taxable capital gains (the "capital gains refund" — the refundable portion of the tax on the net capital gains).
SR&ED credits: The refundable ITC at 35% for the CCPC on the qualified SR&ED expenditures (the "refundable SR&ED credit").
Lifetime capital gains exemption (LCGE): The exemption of the first $1,016,836 (2025) of the capital gain on the sale of the QSBC shares. The QSBC shares are the shares of the CCPC that meet the "qualified small business corporation" test (the 90%+ of the assets are used in the active business, the shares are owned by the individual for 24+ months).

CCPC Tax Planning

Income sprinkling (TOSI): The "tax on the split income" — the TOSI rules (the 2018 Budget) impose the top marginal rate on the "split income" (the dividends and the capital gains) received by the family members (the "specified individuals" — the individuals under 18 and the adults who are the non-arm's length to the CCPC). The TOSI applies to the "split income" unless the recipient meets the "excluded amount" test (the "labour contribution", the "capital contribution", the "reasonable return" test).
Estate freeze: The corporate reorganization that "freezes" the value of the CCPC shares at the current value — the shareholder exchanges the common shares for the preferred shares (the "freeze shares") with the fixed value. The future growth accrues to the new common shares held by the family members (the "freeze plan" — the "estate freeze" for the succession planning).
Capital gains strip: The "capital gains strip" — the conversion of the retained earnings into the capital gains (the "surplus stripping" — the CRA's anti-avoidance rules under s. 84.1 and the GAAR). The CRA restricts the "dividend-to-capital gain" conversions (the "dividend strip" — the sale of the shares to the related corporation).

For the corporate tax rules and the T2 return, see our Corporate Tax Guide →. For the small business deduction and the business limit, see our Small Business Deduction Guide →.