Tag archives: corporate tax

Excess cash, excess tax – what’s on your balance sheet?

Canadian federal income tax law provides numerous benefits to companies that engage in an “active business”. Whether a particular endeavour undertaken is an “active business” is, of course, a question of fact and depends on individual circumstances. Some scenarios are clearly those of an “active business”, such as the case of manufacturing and production, retail, mining, sales and shipping and receiving. Others are clearly more of a passive nature, such as merely owning real estate and collecting rent on the property, without any substantive management. Many could be considered somewhere in between.

When a company is in fact engaged in … Continue Reading

Private equity and Canadian partnerships: tax considerations

Canada continues to be an attractive market for private equity (“PE“) investors with recent transactions highlighting significant investments into Canadian real estate and energy infrastructure assets.

Partnerships (particularly, limited partnerships) continue to be a popular PE vehicle, providing a means of pooling and aggregating investment funds and allowing for income or losses to be “flowed-through” to its members for Canadian tax purposes, subject to certain exceptions.

However, the use of partnerships with non-resident investors in PE investments raises two particular issues.

Withholding Tax

Part XIII of the Income Tax Act (Canada) (the “Tax Act“), requires that … Continue Reading

The deemed dividend dilemma: structuring your cross-border credit support

We frequently act as Canadian counsel to lenders and borrowers in cross-border transactions where credit support is provided to a US parent company by one or more of its Canadian subsidiaries. In structuring the deal, a considerable amount of time can be spent determining the extent to which the collateral of the Canadian subsidiaries should secured.

The reason for this dilemma is because of section 956 of the US Internal Revenue Code, which creates a deemed dividend on the income of any controlled foreign corporations (CFCs) irrespective of whether or not the dividend is in fact papered … Continue Reading

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