Corporate Investment Income

AuthorVern Krishna
ProfessionProfessor of Common Law, University of Ottawa Barrister at Law
Pages452-465
452
CHAPTER 18
CORPORATE
INVESTMENT INCOME
A. GENERAL COMMENT
The corporate tax on investment income depends upon the ty pe of corpor-
ation. Public corporations pay tax at norm al rates. The taxation of income
by a private corporation earns depends upon the source of its income.
B. TAX OBJECTIVES
The rules in respect of the taxation of corporate investment income
serve two objectives: (1) to “integrate” the amount of tax that a cor-
poration pays on its investment income with the tax that its individual
shareholders pay; and (2) to discourage individuals from deferring tax
by placing their investments in private holding companies.
“Integration” means that an indiv idual should pay the same amount
of tax on investment income, regardless of whether she earns the in-
come personally or indirectly through a corporation. We achieve inte-
gration by synchronizing the corporate tax rate with the effective rate
of tax that an individual pays on corporate investment income.
We implement the second objective by initially taxing corporate
investment income at a high rate to prevent tax deferral. Thus, we tax
the income (other than taxable dividends) that a Canadian-controlled
private corporation earns at the full corporate rate. Then, we refund a
portion of the tax to the corp oration when it pays out taxable dividends

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