Passive Income And Sbd

Canadian controlled private corporations cpcc can apply the small business deduction sbd to some active business income.

Passive income and sbd. Once passive investment income earned by the associated group exceeds 150 000 the ability to claim sbd is eliminated for the entire group. For every 1 of passive income earned over a new 50 000 threshold by an associated group of companies the sbd limit will be reduced by 5. Both companies have a december 31 year end. For every 1 of passive income earned over the new 50 000 threshold by an associated group of companies the sbd limit will be reduced by 5.

What is passive income and why does it matter. Owner managers can potentially avoid the passive income sbd grind in paragraph 125 5 1 b when triggering corporate capital gains by winding up and dissolving the corporation holding the investments in the same year. The consequences to a company claiming the sbd and having more than 50 000 of passive income in the year are limited to a loss of a deferral of tax 80 000 as shown in the example above and a relatively small increase in the integration cost of earning active business income in a corporation approximately 1 percent in the example above. That is private corporations that earn greater than 50 000 of passive income inside the corporation.

Under the new rules passive investment income earned by a ccpc can have a negative impact on the corporation s ability to claim the sbd. After much consideration and consultation as to how to best curb the accumulation of wealth through passive income strategies inside a corporation the government settled on utilizing the small business deduction sbd to impose the penalty.