Generally, the benefits and drawbacks of a corporation investing in flow-through shares are similar to those of an individual doing so.
As described in the prospectus, when the limited partnership renounces CEE or Qualifying CDE to a limited partner, the limited partner will be entitled to add the amount renounced to its “cumulative CEE account”. A taxpayer with a balance in its cumulative CEE account can use some or all of this account to reduce its taxable income in a given year. Such an account is similar to a deduction in that it will ultimately reduce the tax bill of the taxpayer, but is actually preferable to a deduction because deductions must generally be claimed right away, whereas the cumulative CEE account is a notional account that can be used to reduce a taxpayer’s income when it is most advantageous to do so. An amount can be carried forward in a cumulative CEE account indefinitely and will not disappear when the corporation sells its limited partnership units.
Please note, when the limited partnership units, or any mutual fund corporation shares received in exchange for the limited partnership units are sold, the corporation will realize a capital gain equal to the sale price of the units or shares, as the case may be, (less any costs of disposal) because the adjusted cost base for these units or shares will be nil. Half of any such capital gain will be taxable to the corporation and the other half will be added to the corporation’s capital dividend account which can be paid out to shareholders, tax free.
There are other ways a corporation could reduce its taxable income, such as by paying additional salary to its shareholder-manager(s). Also, there may be negative tax consequences to a corporation holding too many investment assets. In particular, this may be a problem if there is a possibility that an owner-manager might sell his business in the foreseeable future by way of a share sale. Both of these issues should be discussed with the corporation’s accountant or tax advisor. As with all investment decisions, the decision to invest in a flow-through limited partnership should be based primarily on the merits of the investment rather than on the expected tax benefits.
Alberta
For example, a corporation might invest $25,000 in limited partnership units and have $25,000 in CEE renounced to it that year. The corporation
would then be entitled to reduce its taxable income by $25,000 in that year or in future years. The actual benefits t to the corporation
will depend on the applicable tax rate. For corporate income eligible for the small business deduction in Alberta, the combined federal
and provincial tax rate for 2008 is 14.1% for amounts not exceeding the Alberta or federal business limits and 29.5% for amounts that
exceed these limits. For 2008, the Federal business limit is $400,000 and the Alberta business limit is $430,000 from January 1 to March
31 and $460,000 thereafter.
Further to the example, suppose the corporation earned $485,000 in 2008. As a starting point, its tax bill would be approximately $70,022.
However, if it decided to use the entire $25,000 in its cumulative CEE account to reduce its taxable income to $460,000 its tax bill would
be $70,022 meaning the $25,000 investment would result in $7,375 in tax savings. Basically the tax benefits t will be $2,950 for every $10,000
invested where the corporation's income is over $460,000. Where the corporation's income is less than $460,000, the benefits t will be lower
For example, a corporation might invest $25,000 in limited partnership units and have $25,000 in CEE renounced to it that year. The corporation
would then be entitled to reduce its taxable income by $25,000 in that year or in future years. The actual benefit t to the corporation
will depend on the applicable tax rate. For corporate income eligible for the small business deduction in British Columbia in 2008, the
combined federal and provincial tax rate from January 1 to June 30 is 15.5% for amounts up to $400,000 and 31.5% for amounts over
$400,000. After June 30, the rates are 14.5% and 30.5% respectively.
Further to the example, suppose the corporation earned $425,000 in 2008. As a starting point, its tax bill would be approximately $67,750.
However, if it decided to use the entire $25,000 in its cumulative CEE account to reduce its taxable income to $400,000 its tax bill would
be $60,000 meaning the $25,000 investment would result in $7,750 in tax savings. Basically the tax benefit t will be $3,100 for every $10,000
invested where the corporation's income is over $400,000. Where the corporation's income is less than $400,000, the benefit t will be lower
For example, a corporation might invest $25,000 in limited partnership units and have $25,000 in CEE renounced to it that year. The corporation
would then be entitled to reduce its taxable income by $25,000 in that year or in future years. The actual benefit t to the corporation
will depend on the applicable tax rate. For corporate income eligible for the small business deduction earned in Manitoba, the combined
federal and provincial tax rate for 2008 is 13% for amounts up to $400,000. For amounts over $400,000 earned in 2008, the rate is 33.5%
from January 1 until June 30 and 32.5% thereafter.
Further to the example, suppose the corporation earned $425,000 in 2007. As a starting point, its tax bill would be approximately $60,250.
However, if it decided to use the entire $25,000 in its cumulative CEE account to reduce its taxable income to $400,000 its tax bill would
be $52,000 meaning the $25,000 investment would result in $8,250 in tax savings. Basically the tax benefit t will be $3,300 for every $10,000
invested where the corporation's income is over $400,000. Where the corporation's income is less than $400,000, the benefit t will be lower
For example, a corporation might invest $25,000 in limited partnership units and have $25,000 in CEE renounced to it that year. The corporation
would then be entitled to reduce its taxable income by $25,000 in that year or in future years. The actual benefit t to the corporation
will depend on the applicable tax rate. For corporate income eligible for the small business deduction in Ontario, the combined federal
and provincial tax rate for 2008 (ignoring the Ontario claw-back) is 16.5% for amounts up to $400,000 and 33.5% for amounts over
$400,000.
Further to the example, suppose the corporation earned $425,000 in 2008. As a starting point, its tax bill would be approximately $74,375.
However, if it decided to use the entire $25,000 in its cumulative CEE account to reduce its taxable income to $400,000 its tax bill would
be $66,000 meaning the $25,000 investment would result in $8,375 in tax savings. Basically the tax benefit t will be $3,350 for every $10,000
invested where the corporation's income is over $400,000. Where the corporation's income is less than $400,000, the benefit t will be lower
For example, a corporation might invest $25,000 in limited partnership units and have $25,000 in CEE renounced to it that year. The corporation
would then be entitled to reduce its taxable income by $25,000 in that year or in future years. The actual benefit t to the corporation
will depend on the applicable tax rate. For corporate income eligible for the small business deduction in Quebec, the combined federal
and provincial tax rate for 2008 is 19.1% for amounts up to $400,000 and 30.9% for amounts over $400,000.
Further to the example, suppose the corporation earned $425,000 in 2008. As a starting point, its tax bill would be approximately $83,725.
However, if it decided to use the entire $25,000 in its cumulative CEE account to reduce its taxable income to $400,000 its tax bill would
be $76,000 meaning the $25,000 investment would result in $7,725 in tax savings. Basically the tax benefit t will be $3,090 for every $10,000
invested where the corporation's income is over $400,000. Where the corporation's income is less than $400,000, the benefit t will be lower
For example, a corporation might invest $25,000 in limited partnership units and have $25,000 in CEE renounced to it that year. The
corporation would then be entitled to reduce its taxable income by $25,000 in that year or in future years. The actual benefit t to the corporation
will depend on the applicable tax rate. For corporate income eligible for the small business deductions earned in Saskatchewan
in 2008, the combined federal and provincial tax rate for amounts not exceeding the federal or Saskatchewan business limit will be 15.1%
and the rates applicable to amounts in excess of these limits will be 32.5% from January 1 to June 30, 2008 and 31.5% thereafter. For
2008, the federal business limit is $400,000 and the Saskatchewan business limit is $450,000 from January 1 to June 30, 2008 and
$500,000 thereafter.
Further to the example, suppose the corporation earned $500,000 in 2008. As a starting point its tax bill would be approximately
$80,875. However, if it decided to use the entire $25,000 in its cumulative CEE account to reduce its taxable income to $475,000 its tax
bill would be $72,875 meaning the $25,000 investment would result in $8,000 in tax savings. Basically the tax benefit t will be $3,200 for
every $10,000 invested where the corporation's income is over $500,000. Where the corporation's income is less than this threshold, the
benefit t will be lower
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