Cra Passive Income Small Business

Abc company s passive income business limit reduction for its 2020 taxation year is determined as follows.

Cra passive income small business. Small business tax rate of 10. General corporate tax rate of 15. By not allowing passive investment income to be deducted under the small business deduction the canadian government dissuades. Under the new rules the active income a business is allowed to claim at the small business amount is tied to the business passive income.

However the cra does not allow ccpcs to apply the small business deduction to reduce their income tax payable on income earned through investments as investment income does not qualify as active business income. The small business deduction limit will get reduced by 5 for every 1 in excess passive income. The entire business limit for the 2020 taxation year was allocated to abc company. I can illustrate this better with a table.

These new cra passive income changes will first apply to fiscal years that start in 2019 and will reduce the maximum small business deduction available to a ccpc or associated group of ccpcs by 5 for every 1 of passive investment income earned in the previous fiscal year in excess of 50 000. And active earnings greater than 500k.