Income Tax Act (tax considerations) · Active business & the small business deduction
The articles expressly permit a transfer that would end CCPC status
What the check looks for
The small business deduction, the refundable-tax regime and the enhanced SR&ED rate all turn on CCPC status, which is lost if control passes to a non-resident or a public corporation.
Authority: ITA s. 125(7) ("Canadian-controlled private corporation")
The Income Tax Act sets no requirements for the articles; this is a tax consideration that can follow from how they are drafted.
What goes wrong
The articles expressly permit a share to pass to a non-resident or a public corporation. Control passing either way ends Canadian-controlled private corporation status, and with it the small business deduction, the refundable-tax regime and the enhanced SR&ED rate. This is a permission on the page, not a gap in the drafting.
What good looks like
The articles restrict ownership in a way that protects CCPC status.
Check your own articles, free
The PREC Articles Health Check reads your articles of incorporation in your own browser and rates them Red, Yellow or Green against this criterion and 29 others. The check does not upload your document to us.
It reads how the articles are drafted; it does not advise on your circumstances, and Capital Toolkit does not file articles with the Province.
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