Associated & Connected Corporations

who can be associated

only corps can be associated not individuals

why does it matter if corps are associated

good reasons:

• if a supposed PSB earns income from providing services to an associated corp, then it is not considered a PSB

bad reason:

• the small business deduction limit of the first 500,000 on active business income earned by a CCPC has to be split between associated the corps

Two corporations are associated if (3):

• Two companies are owned by the same person or group of persons

• One corporation controls (owns more than 50% of the voting shares) the other

• two related persons own separate corporations and owns 25% or more of the other person’s company.

• Example:

  • Mr. A controls his company and owns 30% of Mrs. A’s company.

  • The companies are associated because of the 25% cross-ownership rule.

Connected

Two corporations are connected if:

1. One owns more than 10% of the shares of the other.

2. Husband and wife are both companies

3. One controls the other (directly or through non-arm’s length persons).

Importance:

1. Refundable Part IV Tax (Applies to All Private Corporations) 😊

• Dividends from non-connected corporations → Taxed at 38 1/3%

• Dividends from connected corporations → Tax based on the payor’s dividend refund (could be zero!)

Related

• Corporations are related when:

  • A person controls a corporation.

  • Two corporations are controlled by the same person.

  • A corporation is controlled by a person, and another corporation is controlled by a related person or group.