Using a Holding Company: How Parent Corporations Can Protect Assets and Defer Tax — CPA Firm Near You, Montreal

Introduction

Many Quebec business owners eventually reach a stage where they need more advanced protection and tax planning than a simple operating company can offer. This is where a holding company becomes invaluable. A holding company (Holdco) can protect assets, defer taxes, separate risk, structure family ownership, and unlock strategic wealth planning opportunities. This guide explains how a holding company works, why it is used, and how a CPA near you in Montreal can help structure it properly.

Legal and Regulatory Framework

Under the Income Tax Act and the Quebec Taxation Act, a holding company is a separate corporation that owns shares of an operating company (Opco) or investment assets. Dividends paid from Opco to Holdco are generally tax-free when both corporations are Canadian-controlled private corporations (CCPCs). A holding company can also own real estate, investments, intellectual property, or passive assets. Proper structuring requires updated corporate minute books, share registers, and compliance with the Quebec Business Corporations Act (QBCA) or CBCA.

Key Court Decisions

Courts have ruled that holding companies must serve legitimate business purposes. Judges have challenged structures created solely to avoid tax without economic substance. Several decisions confirm that dividends must be properly declared and documented to move funds to a holding company. Courts also clarified that improper transfers between corporations or shareholders can trigger shareholder benefit rules, taxable deemed dividends, or denied deductions. Proper documentation and legal structure are essential.

Why CRA and Revenu Québec Scrutinize Holding Companies

Holding companies attract attention because they involve intra-corporate dividends, intercompany loans, and asset protection strategies. CRA looks for improper dividend declarations, undocumented share transfers, misused shareholder loans, passive income issues, and attempts to avoid the Tax on Split Income (TOSI). Revenu Québec examines GST/QST compliance, lack of substance, or management fees that lack reasonable support. Improper structures raise audit risk.

Strategic Uses of a Holding Company

Asset protection

Profits moved from Opco to Holdco are shielded from operating risk. If Opco faces lawsuits, creditors, or bankruptcy, assets in Holdco are generally protected.

Tax deferral

Tax-free intercorporate dividends allow wealth to grow in Holdco without triggering personal tax until funds are withdrawn personally.

Estate and succession planning

Holdco allows shares to be reorganized for heirs, including freezes, trusts, and family ownership structures.

Investment flexibility

Holdco can invest profits in real estate, stocks, or other corporations, allowing for diversified growth.

Sale of the business

Holdco can be used to purify Opco to qualify for the Lifetime Capital Gains Exemption (LCGE).

Income splitting (where permitted)

When structured properly, Holdco can help allocate income among family members without violating TOSI rules.

Risks and Pitfalls

Passive income rules

Excessive passive income in Holdco can reduce Opco’s small business deduction.

Improper loans

Intercorporate loans without documentation can create tax liabilities.

Poor documentation

Missing resolutions or share registers weaken asset protection.

GST/QST misunderstandings

Holdco activities must be structured correctly to avoid tax disputes.

Pierced corporate veil

If corporate formalities are ignored, courts may disregard the structure.

Mackisen Strategy

At Mackisen CPA Montreal, we design, structure, and maintain holding company arrangements that maximize protection and tax efficiency. We prepare minute books, intercorporate resolutions, dividend declarations, share reorganizations, and compliance filings. We also build long-term tax strategies involving estate freezes, investment planning, income allocation, and passive income management to preserve your small business deduction.

Real Client Experience

A Montreal business owner moved profits into a holding company to protect wealth from Opco’s lawsuit exposure; documented resolutions ensured full protection. Another client faced passive income penalties due to mismanaged investments in Holdco; we restructured the portfolio to prevent further reduction of the small business deduction.

Common Questions

Is a holding company right for every business?

Not always. It is most beneficial for profitable, growing corporations.

Are dividends from Opco to Holdco really tax-free?

Generally yes, when both are CCPCs, but proper documentation is required.

Can I put rental properties in Holdco?

Yes, but passive income rules must be reviewed.

Does a holding company save taxes automatically?

No. It creates opportunities, but strategy and compliance are required.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal structures holding companies that protect assets, defer taxes, and create long-term corporate wealth-building opportunities. We ensure documentation, compliance, and strategic execution tailored to your goals.