Tax Planning Strategies for CCPCs Post-2024 Federal Budget

For Canadian-Controlled Private Corporations (CCPCs), navigating the tax landscape has become increasingly complex, particularly in light of recent federal budget changes. The Chartered Professional Accountants at Mew and Company have addressed these challenges, offering insights on how to adjust tax planning strategies to maximize savings and minimize tax liabilities.

Prior to 2016, using dividends for shareholder remuneration was more tax-advantageous, as it did not require Canada Pension Plan (CPP) premiums and benefited from a favorable tax structure. However, current tax rates on CCPC dividends have increased, eroding these advantages. As a result, payroll has become the more favorable method of remuneration despite the higher CPP premiums, as it also creates Registered Retirement Savings Plan (RRSP) room for future deductions.

When considering investment strategies, the choice between RRSP accounts and CCPC or Holding Company (Holdco) investments requires careful analysis. Although capital gains within an RRSP are fully taxable upon withdrawal, they are not taxed until the asset is sold, unlike unregistered personal or corporate accounts where 50% of capital gains are taxable. This creates a long-term planning dilemma, especially for those with substantial RRSP savings looking to assist their adult children financially.

The April 2024 budget proposes taxing capital gains earned in a CCPC at an inclusion rate of 66.67%, up from the current 50%. This represents a significant 33.33% tax increase on capital gains within corporations. Additionally, the Capital Dividend Account (CDA), which allows for tax-free extraction of dividends, is expected to decrease from 50% to 33.33% remaining tax-free. Given Canada's ongoing deficit, there is speculation that the capital gains inclusion rate could rise further to 75% or more.

In this evolving tax environment, investing in an RRSP could become more favorable compared to CCPC investments. Creating RRSP room through payroll remuneration is a strategic move to consider. The experienced Chartered Professional Accountants at Mew and Company are available to assist CCPCs in navigating these changes, ensuring optimal tax planning and financial health.