Corporations are associated if at any time in the year:

a. One of the corporations controls the other.
b. Both corporations are controlled by the same person or group of persons.
c. Each corporation is controlled by a person who is related to the person controlling the other corporation and each person owned at least 25% of the issued shares of any class.

There are variations on share ownership but each case must be examined carefully as Revenue Canada has determined that control of a corporation for purposes of the association rules is considered to be factual control regardless of ownership of a majority of voting shares.

Implications of two or more corporations being deemed associated are:

1. Corporations are eligible for the small business deduction (SBD), which effectively reduces the corporate income tax rate to 21% from 44% (Ontario rates), if the following conditions apply:
    a. Its income is from an active business in Canada.
    b. Its taxable income is less than $225,000

   
A corporation will however have to share the low rate of income tax on the taxable income below $225,000 with other associated corporations.

2. Ontario capital tax requirement threshold limits are based on associated corporation status. Accordingly while each corporation would individually be exempt from capital tax, the association rules would require, in some circumstances, both corporations to pay capital tax.

The above provides general information only. It should not be regarded or relied upon as accounting or taxation advice or opinions. Logan Katz LLP Chartered Accountants would be pleased to provide more information or specific advice on matters of interest to you.
 

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