Passive Income in a Canadian Controlled Private Corporation

With the passage of the new tax law in 2018, Canadian Controlled Private Corporations are now subject to reduced limits for the Small Business Deduction. The Small Business Deduction currently allows for the first $500,000 of active business income earned by a CCPC to be subject to a lower tax rate of 13.5% (2018) and 12.5% (2019) for businesses that are operating in Ontario.

Effective in 2019, if a CCPC generates over $50,000 in passive income during the tax year the amount of eligible income which is to be taxed at the small business tax rate is reduced. After reaching this $50,000 threshold for passive income, which can include interest, rent, dividends and capital gains, the CCPC will have a greater amount of their active business income taxed at the general rate (i.e. a higher corporate tax rate). 

The reduction on the SBD limit of $500,000 is $5 for every $1 of investment income that is over the $50,000 threshold and up to $150,000.  At the $150,000 the limit is reduced to zero and is now subject to the general tax rate. 

To see addtitional tax chart & rates by province for CCPC and general higher tax rates click here.

The above information is of a general nature only and should not be relied upon for specific situations.  We do not endorse the accuracy of the charts on the websites above.  Click here for additional tax accounting services information. 

Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your best options and set up an appointment.