Can a Holding Company in Canada have Expenses?
What are Common Expenses for Holding Companies in Canada?
Even though holding companies don’t engage in active business operations, they have various expenses. Those typically relate to the company’s ownership and control of subsidiary companies. Expenses will also include costs spent on incorporating and maintaining the holding company.
In short, a holding company’s expenses directly involve business activities, such as overseeing the financial strategies of its subsidiaries or managing insurance coverage and risk mitigation for the corporate structure.
As such, a holding company needs to properly document its expenses and be sure that it follows Canadian tax laws and regulations. To ensure compliance, consult with a financial professional or tax advisor.
Get the clarity your business deserves by contacting Parr Business Law.
Types of Expenses Holding Companies in Canada Incur
Investments
Investment expenses are associated with the acquisition, management, and sale of investments. They can be broken down into:
Legal Fees
Expenses related to hiring legal professionals to conduct due diligence on potential investments.
If you pay for financial advisors to assist in evaluating potential investments – those costs are included as well.
Brokerage Fees
These are charges incurred when buying or selling securities through a broker. One common fee is brokerage commissions.
Those are charged per transaction and based on buying and selling stocks, bonds, and ETFs. Full-service brokers, for instance, charge around 1-2% of the total purchase price.
Monitoring and Reporting Expenses
You’re likely to invest in tracking software, portfolio management tools, and reporting systems. These costs are important for monitoring and reporting the finances of the investment portfolio.
Taxes
Managing tax compliance, seeking professional advice, and implementing strategies to optimize the company’s tax position is important to business owners and shareholders. These considerations include:
Tax Advisory Fees
Such fees include obtaining a professional’s advice on tax planning and compliance.
Audit and Compliance Costs
These are expenses that target the preparation of financial statements, audits, or the use of tools (like QuickBooks and TurboTax) to facilitate tax compliance processes.
Transfer Pricing Documentation
If your holding company engages in transactions with third parties or related ones, it may incur expenses for preparing transfer pricing documentation that ensures compliance.
Tax Filings and Reporting
The cost of tax returns, such as corporate income tax returns and submitting tax documentation to the relevant authorities is a holding company’s most crucial expense.
Financials
Financials cover transactions, reporting, and abiding by accounting standards.
Accounting Fees
Many holding companies opt for hiring external accounting firms for bookkeeping, financial statement preparation, and other accounting services.
Auditing Costs
In addition to accounting firms, a holding company may hire external auditors to review and verify the accuracy of financial statements. Alternatively, they might conduct internal audits instead to assess financial controls.
Treasury Management Costs
These costs cover the management of cash and liquidity. They’re related to implementing treasury management strategies – for example, managing working capital.
Income
Holding companies earn income from certain revenue-generating activities. Income expenses, as such, can encompass the following:
Dividend Payments
These go to shareholders in the scenario that the Holdco distributes profits to them.
Interest Payments
Interest expenses occur when the holding company borrows funds for investments or other purposes.
Employee Compensation
Salaries, benefits, and bonuses to the company’s employees fall under this term. Additionally, if the company provides the employees/execs with stock options or any other form of equity, that too, is considered an expense.
Depreciation and Amortization
Any company that owns depreciable assets (such as computers, vehicles, and furniture) or intangible ones (patents and trademarks for example) will have depreciation expenses.
Administrative Costs
Money spent on management and administration is key to a successful business. Expenses to expect include:
Office Expenses
Think of basic costs that come with any office: rent, utilities, stationery and office supplies, purchase and maintenance of office equipment…etc.
Training and Development
Training programs for employees are an essential part of building a business, as are expenses related to their professional development.
Licenses and Permits
Another inevitable expense is that spent on obtaining and renewing necessary business licenses.
Permits required for business operations are also included.
TL;DR: Key Takeaways
Canadian holding companies incur investment expenses, such as due diligence costs, transaction costs, and investment management fees.
Holdcos in Canada are subject to tax expenses: auditory and advisory fees, documentation pricing, and tax filings.
As a Canadian holding company, expect your financial expenses to cover treasury management costs and accounting fees.
Holding companies spend their income on various expenses, including employee compensation, dividends, and interests.
All companies, including Holdcos, have administrative costs. That’s money spent on office leases, training and development, and necessary licenses and permits.
