Corporate Investment Income

AuthorVern Krishna
ProfessionProfessor of Common Law, University of Ottawa Barrister at Law
Pages452-465
452
CH AP TER 18
COR POR ATE
INVESTMENT INCOME
A. GENER AL 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 earn s depends upon the source of its income.
B. TA X OBJECTIVES
The rules in respect of the t axation 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 t ax that its individual
shareholders pay; and (2) to discourage individuals from deferring tax
by placing their investment s in private holding companies.
“Integration” means that an indiv idual should pay the same amount
of tax on investment income, regardless of whether she ear ns the in-
come personally or indirectly t hrough a corporation. We achieve inte-
gration by synchroni zing the corporate tax rate w ith 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 Can adian-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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