CCPC providing services or property to a private corporation

Does the CCPC (directly or indirectly, in any manner whatsoever) provide services or property to a private corporation that is not associated? Note that the exception for associated corporations is revoked to the extent the service/property is deductible by the recipient against income subject to any of the carve-outs in sub-paragraph 125 (1)(a)(i).

If not, clause 125(1)(a)(i)(B) carve-out does not apply and the CCPC may include income in paragraph 125(1)(a).

 

If so, we must ask whether the CCPC, a shareholder of the CCPC or a person who does not deal at arm’s length with either the CCPC or a CCPC shareholder holds a direct or indirect interest in the private corporation?

 

If the CCPC, a shareholder of the CCPC or a person who does not deal at arm’s length with either the CCPC or a CCPC shareholder does NOT hold a direct or indirect interest in the private corporation, clause 125(1)(a)(i)(B) carve-out does not apply and the CCPC may include income in paragraph 125(1)(a).

If the CCPC, a shareholder of the CCPC or a person who does not deal at arm’s length with either the CCPC or a CCPC shareholder DOES hold a direct or indirect interest in the private corporation, we must then determine whether the CCPC earns all or substantially all of its active business income from providing sevices/property to:

  1. Arm’s length persons (other than the private corporation), or
  2. Partnerships with which the CCPC deals at arm’s length, other than a partnership in which a non-arm’s length person holds a direct or indirect interest.

 

If the CCPC, a shareholder of the CCPC or a person who does not deal at arm’s length DOES hold a direct or indirect interest in the private corporation and earns all or substantially all of its active business income from providing sevices/property to arm's length persons or partnerships, clause 125(1)(a)(i)(B) carve-out does not apply and the CCPC may include income in paragraph 125(1)(a)

If not, all of the CCPC’s income from providing services/property to the private corporation is carved-out per clause 125(1)(a)(i)(B)

 

Does the CCPC provide services or property directly to the private corporation?

If they do not, the CCPC cannot include any carved-out income in paragraph 125(1)(a).

If the CCPC does, then we must ask whether the recipient private corporation has business limit determined under subsections 125(2), (3) or (4)?

If they do not, the CCPC cannot include any carved-out income in paragraph 125(1)(a).

If they do, the CCPC may include carved-out income as SCI in paragraph 125(1)(a) equal to least of:

  1. CCPC's income from providing services or property directly to the private corporation, less any portion of that income that is deductible by the private corporation against income subject to carve-outs in sub-paragraph 125 (1)(a)(i)(A) or (B);
  2. The amount of business limit assigned by the private corporation to the CCPC;
  3. An amount the Minister determines to be reasonable in the circumstances.

 

For more information, contact your trusted LCA accountant.