Investment holding companies

The tax system contains special rules that are intended to eliminate any preference for earning income in a corporation as opposed to personally. These rules— referred to as integration rules—are technically designed to ensure that the after-tax return on income realized through a corporation and subsequently distributed to the shareholder is roughly the same as if the shareholder had received the income from the investments directly.

Nevertheless, there may still be some situations where you might want to use a company to hold your investments. For example, individuals eligible for OAS benefits whose personal income (excluding investment income) is $73,756 or less (see topic 72) may come out ahead by holding their investments in a corporation. Investment holding corporations can also be used to implement an estate freeze (see topic 131).

Every situation is unique and requires a separate analysis. Your tax adviser can assist you in determining whether this strategy is suitable for your particular situation.

Tax tip: A regular review of your tax situation, including an annual look at your portfolio, is the best way to determine the most advantageous structure in light of any tax rate adjustments, new legislation and changes to your business.

Tax tip: The eligible dividend rules (see topic 143) may affect a decision to hold your investments in a corporation. If you already have an investment holding company, you should contact your tax adviser to determine if any restructuring might be needed.