What makes a corporation a CCPC under the Income Tax Act, and what breaks the status?
Under ITA s.125(7), as of 2026, a CCPC is a private corporation that is a Canadian corporation and is not controlled, in law or in fact, by non residents, public corporations or any combination. It fails if one hypothetical person holding all their shares would control it, or if a share class is listed on a designated stock exchange.
Which ownership setups pass the CCPC test?
Run every setup through the same four questions: is it a private corporation, is it a Canadian corporation, does a non resident or public corporation control it (alone, together, or as one hypothetical owner), and is any share class listed on a designated stock exchange laws-lois.justice.gc.ca.
| Who holds the shares | CCPC? | Why |
|---|---|---|
| Two Canadian resident individuals, 50% each | Yes | No non resident or public corporation has control |
| Canadian resident 50%, non resident individual 50% | Yes, unless an agreement, option or casting vote tips control | 50% is not a majority, alone or as one hypothetical owner |
| Canadian resident 40%, two unrelated non residents at 30% each | No | Paragraph (b): one person holding the 60% would control |
| Canadian resident 60%, non resident 40% plus an option to buy 20% more | No | s.251(5)(b) treats the option holder as owning 60% |
| Canadian public corporation 60% | No | Not even a private corporation under s.89(1) |
| Canadian residents 100%, incorporated in Delaware, managed in Toronto | No | Resident in Canada but not a Canadian corporation |
| Canadian residents control it, one class listed on Nasdaq | No | Paragraph (c): Nasdaq is a designated stock exchange |
The name misleads. Nothing in the definition requires Canadians to own or control the corporation. It only requires that the excluded groups don't control it. That's why the 50/50 split in the second row still qualifies, and why citizenship never matters: the test is residence.
What does s.125(7) actually require?
The definition starts with two defined terms from s.89(1). A private corporation is resident in Canada, is not a public corporation, and is not controlled by public corporations (other than prescribed venture capital corporations) or prescribed federal Crown corporations. A Canadian corporation is resident in Canada and was either incorporated in Canada or resident in Canada throughout the period since June 18, 1971 laws-lois.justice.gc.ca.
Then s.125(7) carves out four kinds of corporation laws-lois.justice.gc.ca:
| Paragraph | Excludes a corporation that is | Practical reading |
|---|---|---|
| (a) | Controlled, directly or indirectly in any manner whatever, by non residents, public corporations (other than prescribed venture capital corporations), paragraph (c) corporations, or any combination | Control in law or in fact by the excluded groups |
| (b) | Controlled by one hypothetical person who owns every share held by non residents, public corporations and paragraph (c) corporations | Adds up all excluded holdings, related or not |
| (c) | A corporation with a class of shares listed on a designated stock exchange | Any listing, in Canada or abroad |
| (d) | A corporation that made a s.89(11) election and hasn't revoked it | Only for the provisions listed in (d) |
Paragraph (c) reaches further than the public corporation definition. A public corporation needs a listing on a designated exchange in Canada laws-lois.justice.gc.ca, but the Department of Finance list of 48 designated exchanges includes the NYSE and Nasdaq
canada.ca. A Canadian company listed only in New York isn't a public corporation, yet it still can't be a CCPC.
Paragraph (d) treats an electing corporation as a non CCPC when applying s.125(1), the GRIP and LRIP definitions and s.249(3.1), among others laws-lois.justice.gc.ca. On the T2, the CRA still has it tick the CCPC box on line 040
canada.ca.
How is control measured for CCPC status?
De jure control generally means owning shares that carry the right to a majority of the votes in electing the board canada.ca. That's the starting point for both paragraph (a) and paragraph (b).
Paragraph (a) goes further because it uses the words "directly or indirectly in any manner whatever". Wherever the Act uses that expression, s.256(5.1) treats a corporation as controlled by anyone with direct or indirect influence that, if exercised, would result in control in fact laws-lois.justice.gc.ca. A non resident who holds 45% of the votes plus the key supply contract, the financing or the know how can control a corporation in fact. The carve out: an arm's length franchise, licence, lease, distribution, supply or management agreement whose main purpose is to govern how the business runs doesn't create control by itself.
Rights count as shares. Section 251(5)(b) applies expressly to the CCPC definition: a person with a right, immediate or future, absolute or contingent, to acquire shares or control their votes is treated as already owning them. The only exception is a right that can't be exercised yet because it depends on someone's death, bankruptcy or permanent disability laws-lois.justice.gc.ca. Read every shareholder agreement and option for this before signing off on line 040.
One rule does not carry over from the association tests. The s.256(1.2)(c) deeming rule, which gives control to anyone holding more than 50% of the fair market value of the shares, applies only for s.256(1) to (5) laws-lois.justice.gc.ca. A non resident with 70% of the value in nonvoting preferred shares isn't caught by it for CCPC purposes, though de facto control still can be. The association side is on our associated corporations page.
Worked example: two unrelated non residents break CCPC status
Maria, a Canadian resident, owns 40% of the voting shares of Opco. Two unrelated US residents, Ben and Chloe, own 30% each. They have no voting agreement and never act together. Opco earns $400,000 of active business income in 2026.
Paragraph (a) may not apply, since neither non resident controls Opco alone. Paragraph (b) settles it anyway: put Ben's and Chloe's shares in one hypothetical person's hands and that person holds 60%, a majority laws-lois.justice.gc.ca. Opco is not a CCPC, so it loses the small business deduction.
| Step | Arithmetic | Federal tax |
|---|---|---|
| If Opco were a CCPC | $400,000 × 9% | $36,000 |
| As a non CCPC | $400,000 × 15% | $60,000 |
| Cost of losing the status | $60,000 − $36,000 | $24,000 |
The 9% and 15% are the CRA's federal net rates with and without the small business deduction canada.ca. Provincial tax widens the gap; the rates by province are on our small business deduction 2026 page.
Now say Chloe sells 11% to Dan, another Canadian resident. Ben and Chloe now hold 49% between them, so the hypothetical person no longer has a majority, and nobody has acquired control. Opco becomes a CCPC from that moment, subject to any de facto control by Ben and Chloe. Section 249(3.1) ends Opco's taxation year immediately before it becomes a CCPC and starts a new one laws-lois.justice.gc.ca. The new year can qualify as a CCPC throughout, so the small business deduction applies to it. If the sale had given someone control instead, check the loss restriction event year end in s.249(4).
Which tax breaks need CCPC status, and when is it tested?
The timing differs by provision. Some need the status all year, some at one moment.
| Benefit | Provision | When the status is tested |
|---|---|---|
| Small business deduction (9% federal rate) | s.125(1) | CCPC throughout the year |
| 10 2/3% refundable tax on investment income, recovered through dividends | s.123.3 | CCPC throughout the year, or substantive CCPC at any time in it |
| Extra 20% SR&ED investment tax credit up to the expenditure limit | s.127(10.1) | CCPC (or eligible Canadian public corporation) throughout the year |
| Stock option benefit taxed when the employee sells, not when the shares are acquired | s.7(1.1) | CCPC when the option agreement is made, with an arm's length employee |
| Lifetime capital gains exemption on qualified small business corporation shares | s.110.6(1), using the s.248(1) "small business corporation" | CCPC at the determination time, and a CCPC throughout the prior 24 months while your client or a related person held the share |
| Three year normal reassessment period instead of four | s.152(3.1) | CCPC at the end of the year |
Sources for each row: s.125(1) laws-lois.justice.gc.ca, s.123.3
laws-lois.justice.gc.ca, s.127(10.1)
laws-lois.justice.gc.ca, s.7(1.1)
laws-lois.justice.gc.ca, s.110.6(1)
laws-lois.justice.gc.ca, s.248(1)
laws-lois.justice.gc.ca and s.152(3.1)
laws-lois.justice.gc.ca. The exemption amount for 2026 is on our lifetime capital gains exemption page, and the reassessment rules on our reassessment period page. The 2026 rates and the $6 million limit behind the extra credit are on our SR&ED tax credit page.
The T2 asks a different question again. Line 040 wants the corporation's type at the end of the tax year, and the CRA warns that a change of type during the year can have significant tax consequences canada.ca. A corporation can tick CCPC on line 040 and still fail the "throughout the year" test for the small business deduction, which is exactly what the s.249(3.1) deemed year end exists to prevent.
What is a substantive CCPC?
A substantive CCPC is a private corporation that is not a CCPC but is controlled, directly or indirectly in any manner whatever, by Canadian resident individuals, or would be controlled by one hypothetical individual holding all the shares that Canadian resident individuals own laws-lois.justice.gc.ca. It's the mirror image of paragraphs (a) and (b): the planning it targets moved a Canadian owned company out of CCPC status, for example through a foreign holding company or a foreign listing, to avoid the refundable tax on investment income.
The status doesn't give back the small business deduction. It brings the investment income side into line: s.123.3 adds the 10 2/3% tax for a substantive CCPC at any time in the year laws-lois.justice.gc.ca, and s.129 adds 30 2/3% of its aggregate investment income to non eligible RDTOH
laws-lois.justice.gc.ca. Budget 2022 applied the measure to taxation years that end on or after April 7, 2022
budget.canada.ca, while the CRA's T2 guide words it as tax years starting after April 6, 2022
canada.ca, so check any year that straddles April 7, 2022 against the Budget wording. How the refund works is on our RDTOH page.
An anti avoidance rule backs it up. Under s.248(43), if one of the purposes of a transaction or series is to avoid s.123.3 tax, the corporation is deemed a substantive CCPC until it becomes a CCPC, has a loss restriction event or stops being resident in Canada laws-lois.justice.gc.ca.
Treat the CRA's archived IT-458R2 with care. It dates from May 2000, the CRA no longer updates it, and it predates the substantive CCPC rules and the s.89(11) election canada.ca.
Sources
Does a US citizen living in Canada count as a non resident for the CCPC test?
No. The definition turns on residence, not citizenship, so a US citizen who is resident in Canada counts on the Canadian side laws-lois.justice.gc.ca. A Canadian citizen who has become a non resident counts on the other side.
What happens if a controlling shareholder moves abroad?
The corporation can stop being a CCPC on the day of departure if non residents then control it, alone or as one hypothetical owner. Section 249(3.1) ends the taxation year immediately before that time, so the year up to the departure can still qualify as a CCPC throughout laws-lois.justice.gc.ca.
Can a CCPC choose to be treated as a non CCPC?
Yes, for the provisions in paragraph (d) of the definition. It files an election under s.89(11) by its filing due date, can revoke it under s.89(12), and needs the Minister's written consent to elect or revoke again after that laws-lois.justice.gc.ca.
Is a corporation owned by a Canadian public company a CCPC?
No. A corporation controlled by public corporations (other than prescribed venture capital corporations) isn't a private corporation under s.89(1), so it can't be a CCPC or a substantive CCPC laws-lois.justice.gc.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.