CCPC Shares & Emigration: Understanding Canada Income Taxes

When shareholders of Canadian Controlled Private Corporations (CCPCs) consider emigrating from Canada to the U.S., they face specific tax implications. This article delves into these issues, but it’s essential to consult a professional tax accountant for personalized advice. 

Key Points: 

• CCPCs in Canada: CCPCs are popular among small business owners in Canada. They offer benefits like the small business deduction (SBD) which leads to a lower overall tax rate. However, if a corporation is controlled by non-residents, it loses its CCPC status. 

• Emigration and Tax Residency: The term “emigration” refers to when a resident leaves Canada. The date they become a non-resident is the date of emigration. The Canada Revenue Agency (CRA) uses form NR73 to determine a person’s residency when leaving Canada. 

• U.S. Tax Residency: The U.S. uses the Substantial Presence Test (SPT) to determine tax residency. It’s based on the number of days a person has been in the U.S. over the past three years. 

• Importance of Residency Status: Canada taxes its residents on worldwide income, while non-residents are taxed only on Canadian sourced income. The U.S., on the other hand, taxes both its citizens and residents on their worldwide income. 

• CCPC Shares & Emigration: When a Canadian resident becomes a non-resident, there are tax implications, with deemed disposition and departure tax being the most significant. 

• Deemed Disposition & Departure Tax: When someone leaves Canada, certain assets are subject to a deemed disposition. For CCPC shares, they are deemed to be disposed of at their Fair Market Value (FMV) on the date of emigration. 

• QSBC Exemption: There’s a potential tax relief for those disposing of Qualified Small Business Corporation (QSBC) shares. The Lifetime Capital Gain Exemption (LTCGE) for 2020 was $883,384. 

• U.S. Tax Consequences: Emigrating to the U.S. brings its own set of tax implications. The U.S. tax system is stringent about noncompliance, and there are various reporting requirements for both emigrating shareholders and the Canadian corporation. 

• Unwinding Deemed Disposition: If a Canadian taxpayer returns after a few years, they can opt to reverse the deemed disposition, depending on the value of the shares. 

• Correcting Non-Compliance: The Canada Revenue Agency offers the Voluntary Disclosure Program (VDP) for those who wish to correct their tax affairs voluntarily.