CORPORATE PASSIVE INVESTMENT INCOME: Proposed Changes

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50,000 of passive income. 150,000 of unaggressive income is reached, at which point the entire SBD will be lost. The prior year’s passive income will determine the existing year’s SBD limit. For purposes of these new rules, capital gains on certain types of property will be excluded from being considered passive income. Capital gains realized on the disposition of property used principally within an active business continued in Canada.

The active business could be carried on by the owner of the asset, or by a related party. For example gains on the sale of the goodwill of an active business, and increases on the real estate that the active business operates. Capital benefits realized on shares of another CCPC all or substantially most of whose resources are found in an active business carried on in Canada, provided owner has a significant interest (generally over 10%) in that corporation. Capital loss noticed in a different taxation calendar year that are applied to offset capital gains realized in today’s year won’t reduce unaggressive income for these new guidelines.

Consistent with the existing SBD guidelines, the sum of unaggressive income of all associated corporations will determine the reduced business limit open to the associated group. Passive income is at the mercy of a high commercial taxes rate. However, a portion of these fees are refunded when the CCPC pays taxable dividends. The next prong of the passive income proposals will put in a new limitation. Recovering refundable fees will demand the CCPC to spend non-eligible dividends generally. These carry an increased personal tax cost than eligible dividends. The exception will be where refundable fees arise from the CCPC’s receipt of entitled dividends. Dividends received from most Canadian public corporations are eligible. This part of the refundable tax can then be recovered when the CCPC will pay out entitled dividends.

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