Canada's Income Tax Act (the "Act")
strives to achieve equality and neutrality in the taxation of
income earned:
1. individually;
2. by a corporation that is taxed at the higher general
corporate rate and then distributed to its individual shareholders;
and
3. by a corporation that is taxed at the lower rate
affected by the small business deduction and then distributed to
its individual shareholders.
The general rate income pool ("GRIP") and the low rate
income pool ("LRIP") as set out in section 89 of the Act
is used to achieve this integration. For Canadian-controlled
private corporations, the GRIP is the relevant pool balance that is
critical to achieve equality and/or neutrality. Very generally, the
computation of GRIP is intended to be the balance of the
corporation's undistributed after-tax surplus that has been
built up after paying the higher corporate tax rate. Accordingly,
the Act is designed to recognize whether a corporation has paid
