Understanding CCPC Distribution Options

Eligible Dividends

Eligible dividends are paid from a CCPC's income that has been subject to the higher general corporate tax rate. These dividends benefit from the enhanced dividend tax credit, resulting in a lower personal tax rate compared to other forms of income. Taking eligible dividends can be a tax-efficient way to access profits, especially if your corporation has significant retained earnings from active business income.

Non-Eligible Dividends

Non-eligible dividends are typically paid out from income that has been taxed at the lower small business rate or from investment income. While they still qualify for a dividend tax credit, the credit is smaller, leading to a higher personal tax rate compared to eligible dividends. It's important to consider the source of the income within the CCPC when deciding on non-eligible dividends, as they can have a greater tax impact.

Capital Dividends

Capital dividends are a unique and tax-advantaged distribution available to CCPCs. They are paid from the corporation's capital dividend account (CDA), which accumulates the non-taxable portion of capital gains and certain life insurance proceeds. Capital dividends can be paid out tax-free to shareholders, making them an attractive option when available. However, the amount that can be distributed as a capital dividend is limited to the balance in the CDA.

Shareholder Loan Repayments

Another way to extract funds from your CCPC is through shareholder loan repayments. If you've loaned money to your CCPC or left funds in the corporation as a loan, you can repay yourself tax-free, provided the loan meets CRA guidelines. However, this method is not a dividend and doesn't carry the same tax advantages or implications as eligible or non-eligible dividends. It's a useful tool when structured correctly, allowing you to access funds without triggering immediate tax.