Tax Question:
Are there any tax savings in setting up more than one company?
Facts:
For 2012 companies are taxed on their profits at two rates; the lower rate of 13.5% (Federal 11% and BC Provincial 2.5%) and the higher rate of 26.5% (Federal 16.5% and BC Provincial 10%). The smaller rate applies to profits under $500,000 and is termed the Small Business Deduction Limit (SBD). Every BC Resident Canadian Controlled Private Company has this small business limit unless it is associated with another company. If that is the case then the business limit is shared between the associated companies.
Association is a reflection of control. Two or more companies are associated if they are controlled by the same person or group of persons, directly or indirectly. There are many ways companies can be associated. For example, a shareholder owns Company A which in turn owns Company B. Both companies are associated as they are ultimately controlled by one person. Likewise, the two companies are associated if the shareholder owns the shares directly in Company A and Company B. If you have multiple groups of companies with numerous shareholders you have to identify the relationship between each company very carefully. Failure to identify all the associated companies could result in you declaring too much income at the low rate of tax which will mean interest and penalties on the tax that was not paid.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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