Holdco receives dividends from Opco - tax?

Tax Topics
1

I’m setting up a Holdco - Opco structure. I will 100% own Holdco which will 100% own Opco. Opco is a consulting business.
The purpose of this setup is to allow for the retained earnings (after corporate Tax) flow as corporate dividends between two connected corporations from Opco to Holdco.
I was under the assumption that Holdco will be receiving dividends from Opco tax-free, but then I read about Part IV tax

Taxable dividends received are only subject to Part IV tax if the corporation receives them while it is a private or subject corporation. Taxable dividends received from a non-connected corporation are subject to Part IV tax.
Taxable dividends received from a connected corporation are subject to Part IV tax only when paying the dividends generates a dividend refund for the payer corporation.

Would my Holdco have to pay Part IV tax on dividends received from the 100% owned Opco-generated income (consulting)?

2

The dividends will flow tax-free – unless OPCO receives any refund of Part IV tax (RDTOH). However, in your case, the OPCO is in consultancy business – so the question of Part IV tax on OPCO doesn’t arise. Therefore the HOLDCO will receive the dividends ta free.

Atul

3

Steering clear of subsection 55(2) would be more of a concern than Part IV tax. :slightly_smiling_face:

4

Thank you, @atul and @snoplowguy ! I’ll look into subsection 55(2), too.

5

Can you please shed some light on where it would be recorded on the T2. Thanks in advance.

6

Dividends go on S3 - both those received into the corp and paid out of the corp. If it’s being deemed a capital gain - as result of subsection 55(2) - then it goes on S6.