Weekly Tax Tips
Consider planning to reduce your corporation’s taxable capital before year-end
Date: 16 Dec 2011
An additional consideration for Canadian-Controlled Private Corporations (CCPCs) is monitoring taxable capital. CCPCs with taxable capital for federal tax purposes in excess of certain limits (on an associated group basis) will begin to lose access to the small business deduction and the enhanced 35% investment tax credit for scientific research and experimental development. Taxable capital includes share capital and debt and usually requires some tax-based adjustments, as well as providing for an allowance which reduces taxable capital for certain specified investments.
Taxable capital for the prior year is generally used in determining how much of these benefits are lost. Access to the small business deduction is eliminated when taxable capital reaches $15 million and access to the enhanced 35% investment tax credit is eliminated when taxable capital reaches $50 million. The “clawback” of these benefits represents a good reason as to why capital tax planning should become an important part of your year-end tax review. At one time, most provinces levied a tax on capital. However, all jurisdictions, with the exception of Nova Scotia, have generally eliminated capital tax on non-financial institutions.
There are a number of very simple steps that can be taken prior to year-end to reduce taxable capital. For instance, using excess cash to pay off some debts may reduce your taxable capital. Consult your BDO tax advisor for further information on planning points that may be applicable to your situation.
This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 16 Dec 2011.
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