Zither Co.is a profitable CCPC which earns only active business income.The company is growing and dividend payouts are increasing for the two equal shareholders of the company, who have heard that 'holding corporations' might suit their needs.Which of the following would apply if they each created a holding corporation, and each holding corporation owned 50% of Zither?
A)Dividends received by the holding corporations from the operating company must be invested in the same ventures.
B)The holding corporations would receive the dividends from the operating company, free of tax, to be invested in the shareholders' separate choices.
C)The establishment of holding corporations would allow the shareholders to access the profits of the operating company for personal use without paying a second level of tax.
D)Dividends would flow from the operating company to the shareholders, and then to the holding corporations.

Question

Quizplus · Accepted Answer

Dividends received by holding corporations from an operating company are typically tax-free due to the inter-corporate dividend deduction, allowing the holding corporations to invest the funds as they choose.

Zither CoIs a Profitable CCPC Which Earns Only Active Business Income