Association Problems

Under the Income Tax Act, Associated Corporations (defined HERE) must share the Small Business Deduction (defined HERE). If structured and planned appropriately, a husband and wife can each own a corporation and both corporations may qualify for the full amount of the small business deduction if they are not associated with each other. Significant tax savings can result. Click HERE for a summary of the corporate tax rates including those at the small business rate.

However, proper planning is needed to ensure there is no association. For example, if one of the spouses owns 25% or more of the other corporation under the rules HERE, then the corporations are associated and must share the small business deduction. Another situation where there may be a problem is where say the spouses do not directly own shares in the other corporation, but say a Family Trust where there are minor children beneficiaries own shares in one of the corporations. Under the Income Tax Act, since the children are minors, one of the spouses could be deemed to be the owner of those shares owned by the Family Trust. If there is sufficient ownership, then the spouses corporations could be deemed to be associated under the indirect ownership rules HERE. 

Careful planning for the use of the Small Business Deduction with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

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