Canadian CCPC expanding to USA

Tax Topics
1

Client (Canadian citizen) has had a CCPC for many years and has decided to expand to USA with two partners (partners 1 & 2).

Ownership %'s:

  • Partner 1 - 10%
  • Partner 2 - 40%
  • Partner 3 (the client) - 50%

He consulted with a US accountant, US lawyers, and Canadian lawyers.
Based on recommendations he has opened a USA corporation, which has same name as the Canadian corp but with “USA” at the end of the name.

  • ABC USA (operating co.)

There will be a Hold co (ABC Holding co.) created in Canada - function to receive and distribute profits from US operations to partners.

Client has paid a fee to the mentioned above professionals that covers creation of:

  1. US company (ABC USA)
  2. Canadian Holding company (ABC Holding co.)
  3. A new Canadian corporation for Partner 3 (client) who will own 50% of Canadian Holding company (ABC Holding co.)

He wants things to be as simple as possible and doesn’t expect USA operation to be able to distribute profits for some time.

Illustration below

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My client has asked me if it’s best for his 50% share to be owned by:

  1. A new corporation (will own 100%)
  2. His current CCPC (will own 100%)

Can anyone comment on the pros and cons of each option? He seems to be leaning towards option 1 to keep things separate.

My thoughts is option 1.

2

If “ABC Holding” has not yet been created, then how can “ABC USA” have been created without specifying who owns the shares of that corp?

If your client sets up a new corporation to hold his shares of ABC Holding, that means he will have to pay to have the year-end (tax filing, etc) done - this is an additional cost that he could avoid by using his existing CCPC.

On the other hand, if he is looking to purify his current CCPC for a future sale that will qualify for the capital gains deduction (on QSBC shares), the shares (of ABC Holding, held by the CCPC) may affect the “active assets” test.

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