Passive Business Income Tax Rate Canada

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.

Passive business income tax rate canada. For many small business owners their private company is a key component in saving for their family and their future retirement. New legislation passed in 2018 means passive income might now expose business owners to more tax on their active business income. Businesses with less than 50 000 in annual passive income can claim the full 500 000 at the 9 small business rate. With the exception of inter corporate dividends passive income earned by ccpcs or any corporation in canada is ineligible for deductions and consequently fully taxable at the corporation s combined provincial and federal tax rate.

That means that a ccpc using the sbd can claim the small business tax rate on up to 500 000 of its active business income carried on in canada offering a significant reduction in tax. Things are about to change. As of 2018 the small business tax rate is 9 while the corporate tax rate is 15. Passive investment income on july 18 2017 the government released a consultation paper with proposals to address tax planning strategies using private corporations including an outline of possible approaches to limit the tax deferral opportunities that are associated with holding passive investments inside a private corporation.