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There are a number of reasons to consider when deciding whether or not to incorporate your Holdco. A Holdco has some great benefits that may not be typically available through a one-corporation structure.
Jamie Golombek, Debbie Pearl-Weinberg Nov. 20, 2020 20 minute read

What is a Holdco?

What are some benefits of using a Holdco to own an operating company?

Asset protection

Flexibility in timing

U.S. estate taxes

Acquiring a corporation

Future sale of a business

Lifetime capital gains exemption

Estate freeze

Tax on split income (TOSI)

Should I incorporate my investment portfolio?

Figure 1: Tax Savings (Cost) from Incorporating Investment Income, by Province or Territory 

Jurisdiction   

Other Canadian Investment Income 

Canadian Dividends

Net Capital Gains

AB (5.55%) 0.00% (2.78%)
BC (5.91%) 0.00% (2.95%)
MB (6.94%) 0.00% (3.47%)
NB (6.59%) 0.00% (3.30%)
NL (7.06%) 0.00% (3.53%)
NS (7.98%) 0.00% (3.99%)
NT (2.09%) 0.00% (1.05%)
NU (5.73%) 0.00% (2.87%)
ON (4.12%) 0.00% (2.06%)
PE (8.36%) 0.00% (4.18%)
QC (3.48%) 0.00% (1.74%)
SK (4.80%) 0.00% (2.40%)
YT (5.74%) 0.00% (2.87%)

Source: Tax Templates Inc., July 1, 2019, assuming the shareholder pays tax at the top marginal tax rate

Figure 2: Tax Deferral (Prepayment) from Incorporating Investment Income, by Province or Territory

Jurisdiction   

Other Canadian investment income 

Eligible dividends

Other than eligible dividends

Net capital gains
AB (2.16%) (6.62%) 3.97% 1.08%
BC (0.87%) (6.89%) 6.30% (0.43%)
MB (0.27%) (0.55%) 8.34% (0.13%)
NB 0.63% (4.82%) 9.42% 0.32%
NL (2.37%) 4.28% 6.26% (1.18%)
NS (0.67%) 3.25% 9.95% (0.33%)
NT (3.12%) (10.00%) (1.51%) (1.56%)
NU (6.17%) (5.25%) (0.54%) (3.08%)
ON 3..36% 1.01% 9.07% 1.68%
PE (3.30%) (4.11%) 6.89% (1.64%
QC 3.04% 1.67% 7.92% 1.52%
SK (3.17%) (8.69%) 2.04% 1.58%
YT (2.67%) (9.40%) (3.84%) (1.33%)

Source: Tax Templates Inc., July 1, 2019, assuming the shareholder pays tax at the top marginal tax rate

TOSI for investment income?

Small business deduction

Conclusion

Jamie.Golombek@cibc.com Opens your email app.

Jamie Golombek, CPA, CA, CFP, CLU, TEP is Managing Director, Tax and Estate Planning with CIBC Financial Planning and Advice in Toronto. 

Debbie.Pearl-Weinberg@cibc.com Opens your email app.

Debbie Pearl-Weinberg, LLB is Executive Director, Tax and Estate Planning with CIBC Financial Planning and Advice in Toronto.

1 For more information, see the report titled “Intercorporate Dividends: New Anti-Avoidance Rules” by Debbie Pearl-Weinberg, which is available from your CIBC advisor. 

2 Further information on how the tax deferral associated with earning business income works can be found in our reports “The Compensation Conundrum: Will it be salary or dividends?”, “Bye-bye Bonus! Why small business owners may prefer dividends over a bonus”, and “In Good Company: Retaining investment income in your corporation”. These reports are available online in the “Business owners” section at Tax savings tips.

3 While the deferral on active business income can be maintained, there is often a tax prepayment on investment income.

4 Further information on this tax cost can be found in our report “In Good Company: Retaining investment income in your corporation”, supra note 2.

5 For qualified farm and fishing property, the LCGE is $1,000,000.

6 The report titled “The New CCPC Tax Rules” is available online in the “Business owners” section at Tax savings tips.

7 This assumes that you pay personal tax at the highest marginal tax rate. 

8 A refundable Part IV tax 381 /3% is levied on dividends that a Canadian private corporation receives from another, non-connected Canadian corporation. The “Part IV tax” is notionally tracked in the Refundable Dividend Tax on Hand (RDTOH) account and is fully refundable at a rate of $38.33 for every $100 of taxable dividends distributed to the shareholder. Both the after-tax income and refunded tax may be distributed to the shareholder, either as eligible or non-eligible dividends, according to the type of dividends originally earned.

9 See note 6.

10 This amount is $600,000 for Saskatchewan tax purposes.

11 The term “associated” is defined in the tax rules. Corporations are associated for tax purposes when they have common control. For instance, if two corporations are owned by the same person, they will be considered associated for tax purposes. Further, in many circumstances, corporations with related shareholders are considered to be associated.

12 Ontario and New Brunswick have announced that they are not following this federal tax measure.

13 Our report “CCPC Tax Planning for Passive Income” is available online in the “Business owners” section at Tax savings tips.

Disclaimer
As with all planning strategies, you should seek the advice of qualified tax and legal advisors. This report is published by CIBC with information that is believed to be accurate at the time of publishing. CIBC and its subsidiaries and affiliates are not liable for any errors or omissions. This report is intended to provide general information and should not be construed as specific legal, lending, or tax advice. Individual circumstances and current events are critical to sound planning; anyone wishing to act on the information in this report should consult with his or her financial advisor and tax specialist. The CIBC logo is a registered trademark of CIBC.

To create a tailored plan for your business needs and help you achieve your goals, meet with us. We’re here to help. Talk to a CIBC Business Advisor today by calling 1-866-992-7223.

Note: This report was initially published on October 2019.

Written By
Jamie Golombek, CPA, CA, CFP, CLU, TEP

Jamie Golombek is the Managing Director of Tax and Estate Planning with CIBC in Toronto. Jamie is quoted frequently in the Canadian media as an expert on taxation, writes a weekly column called “Tax Expert,” in the National Post, has appeared as a guest on BNN, CTV News, and CBC’s The National and has been a regular personal finance guest on The Marilyn Denis Show.

Written By
Debbie Pearl-Weinberg, LLB

Debbie is an Executive Director of Tax and Estate Planning with CIBC Financial Planning and Advice.  She is a member of the Law Society of Upper Canada, the Canadian Bar Association and the Canadian Tax Foundation. She also works with the Investment Industry Association of Canada on tax matters concerning the investment industry.

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