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What is a subsidiary corporation?
A subsidiary corporation is a corporation that is owned in whole or mostly by another corporation.
Corporations can be owned by individuals, other corporations or a mix of both. If a corporation is owned by another corporation, then it is a subsidiary of the corporation that owns its shares. Not all subsidiaries are 100% owned; the parent corporation could hold any percentage of ownership from 1% to 100%. If the percentage of ownership was small or less than 20%, then it would have a minority interest. If the percentage of ownership was larger or greater than 51%, then it would have a majority interest.
Having many subsidiary corporations does not increase your small business deduction as the small business deduction must be split between all associated corporations. Subsidiaries are often set up to hold operations in foreign jurisdictions. By incorporating a subsidiary in a foreign jurisdiction that is owned by a Canadian corporation, it puts a box around the foreign operations and helps to protect the Canadian operations from poor integration of foreign income taxes with Canadian taxes. Also, subsidiary corporations are required to charge sales taxes (HST/GST/PST) on the sale of goods or services to the parent corporations even though they have a parent/subsidiary relationship. However, an election can be filed to treat certain taxable supplies as having been made for $Nil consideration. This will eliminate the requirement to charge sales taxes on transactions between the parent and subsidiary corporations. The election is form GST27 and it must be filed by each corporation.
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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.