Corporate Dissolution Services
Although a corporation in Alberta may become inactive and cease its business operations, the Articles of Incorporation remain in force until the corporation is legally dissolved. In order to truly dissolve a business, it first must be in compliance with all outstanding items with Alberta government, such as any tax money owed. If everything is up to date the application for dissolution will be processed and granted.
In order to dissolve an Alberta corporation, an application first must be made to the Ministry of Finance requesting its consent. We take care of this process for you and make sure that there is nothing outstanding when the application for dissolution is made.
Tax Consequences of Dissolution
Closing a corporation without careful planning can generate some unwanted tax consequences.
Under the Income Tax Act, a shareholder must take a dividend when a corporation is dissolved. This dividend is calculated by subtracting the paid-up capital of shares from the fair market value of assets transferred to the shareholders. If the corporation has a balance in its capital dividend account, there is an election that allows it to pay out a tax-free capital dividend. The problem is, the dividend is tax-free only if the proper forms are filed before it is paid. Without those forms, when the corporation is dissolved from the corporate registry, the entire dividend is taxable and any capital dividends will expire unused.
The tax consequence of the dissolution, then, is that the corporation is deemed to have disposed of all assets at fair market value, which can generate a capital loss or gain, a recapture of Capital Cost Allowance, or a terminal loss, depending on the nature of the assets.
These types of specific tax considerations are vital in the process of dissolution. A1 Accounting specializes in advising its clients to make best decisions in their particular situation.
Amalgamation is a process by which two or more corporations governed by the Canada Business Corporations Act, the “amalgamating corporations,” merge and carry on as one corporation, the “amalgamated corporation”.
A Canadian corporation’s unused losses normally cease to exist when it is wound up. However, an exception under the Canadian tax rules permits a Canadian parent corporation, which owns 90 per cent or more of the shares of a Canadian subsidiary corporation that is wound up, to use the subsidiary’s capital and non-capital losses against its own income or gains for tax years ending after the subsidiary has been wound up, subject to the normal carryforward time limits. This exception only allows the parent to use the subsidiary’s losses going forward: Profitco would not be able to carry back Lossco’s losses to any of Profitco’s own tax years ending before Lossco was wound up.
This tax planning technique can be very advantageous to shareholders of the amalgamated corporation. Our advisors can help you select the right strategy for your particular situation.
Tax Deferral and Income Splitting Opportunities of a Holding Corporation
One of the most significant advantages of a holding company is the potential tax savings they may offer in the form of tax deferral and income splitting opportunities where this can’t be accomplished within the operating company itself (i.e. where there may be multiple arm’s length shareholders of the operating company, for example).
To illustrate, profits from an active business earned inside an operating company are subject to a low corporate tax rate. These after corporate tax earnings can then be distributed to the shareholders in the form of dividends. If the dividends are received by an individual shareholder they are subject immediately to personal income taxes, albeit at a preferential rate (i.e. reduced by the corporate income tax already paid).
Our strategists are well versed in intricacies of corporate tax laws and are in the position to advise you to take the best course of action when it comes to selecting a holding corporation as a tax saving mechanism.