A holding company is a private or public corporation which holds some or all of the shares in one or more private or public corporations. The main benefit of a holding company is in the tax treatment of dividends received from the other corporations owned.
Dividends received by a Canadian corporation from another taxable Canadian corporation are not included in taxable income (Income Tax Act s. 112(1)). When a Canadian controlled private corporation (CCPC) receives dividends from another taxable Canadian corporation with which it is not connected, it pays a special tax, called Part IV tax, at the rate of 33 1/3%. The Part IV tax, and a portion of any Part I tax (regular income tax) paid on investment income, are recoverable via a dividend refund when taxable dividends are paid to shareholders.