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Associated Corporations

There are various tax implications of associated corporations. Two companies are associated if one controls the other, both are controlled by the same person or corporation, or both are controlled by the same group of people. There are also other situations resulting in associated corporations, but these are the major ones. Here are some of the principal tax implications of associated corporations in Canada:

  • Two or more Canadian-controlled private corporations that are associated must share the annual business limit to get the small business deduction. It is therefore essential for a Canadian Chartered Accountant to be involved in the allocation of profits and business limits between the associated companies, so that income taxes can be minimized.
  • Where two or more Canadian-controlled private corporations are associated, the expenditure limit on scientific research expenditure claims must be allocated among them, to obtain the investment tax credit.It is important for the firm accountant to make this calculation in order to maximize the investment tax credit.
  • In some cases it may be beneficial to file an election not to be associated. This can apply when two corporations are associated by virtue of each being associated to a third corporation which is a Canadian-controlled private corporation. Dropping the association may be beneficial in some situations where the third corporation has no income and is therefore not taxable, since the election results in the third corporation not being allowed to claim the small business deduction.

There are many other tax implications of associated corporations in Canada. Please contact Simkover and Associates at 905-943-4046 if you need further accounting services or advice in relation to this topic.Click here for additional contact information

Associated Corporations - Simkover and Associates Chartered Accountants

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