General Rate Income Pool (For CCPCs)

General Rate Income Pool (For CCPCs)

What is the General Rate Income Pool (GRIP)
  • The General Rate Income Pool (GRIP) is a pool that keeps track of income that gets taxed at the general corporate tax rates for all Canadian Controlled Private Corporations (CCPC’s)
  • When the corporation pays dividends, it is allowed to designate the amount in the GRIP Balance as Eligible Dividends.
    • Because the corporation has already paid taxes at the high corporate rate; to achieve integration, amount paid out of the GRIP is considered eligible dividends. Eligible Dividends get taxed a lower personal rate (30% as opposed to 33% for non-eligible dividends at the top tax bracket)
  • GRIP is kept only by CCPC’s
GRIP formula

GRIP @ End of Tax Year =

GRIP Balance at the end of the previous year + 72% * [Taxable Income – Amount Eligible for the SBD – Aggregate Investment Income] + Eligible Dividends Received – Eligible Dividends Paid by the Corporation

  • In essence, the formula assumes that the combined general corporate tax rate is 28% (which is very close to the average rate of 27.5% (calculated in our overview of federal and provincial corporate tax rates notes)
  • Eligible Dividends received by corporations increase the GRIP balance, to insure that integration is still achieved by individuals who earn dividend income through a corporation (substance over form)
Eligible Dividends
  • When a corporation pays out dividends, it needs to designate how much of it is eligible dividends (done in schedule 3)
  • The maximum amount they can designate as eligible dividends = GRIP Balance at the end of the tax year
What happens if I designate Eligible Dividends > GRIP Balance
  • Suppose the GRIP Balance is $72,000 and you designate $80,000 as eligible-dividends
  • You will need to pay Part III.1 Taxes = (eligible dividends designated in excess of GRIP) * 20%
  • Therefore, in our example, there will be a Part III.1 Tax of (80,000-72,000) * 20% = $1,600
  • If CRA has reasons to believe that this excess eligible dividend designation was done purposely to manipulate the taxes payable; there will be a Part III.1 Tax = 30% * the entire eligible dividends declared
    • In our example this would equal to 30% * (80,000) = $24,000

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