2019 Brings Changes to Passive Investment Income

The 2018 Federal Budget introduced new rules that can reduce the amount of the small business deduction available for active business income earned in a Canadian controlled private corporation where the corporation earns passive investment income beyond certain limits.

What are the changes?

The federal small business deduction limit is $500,000.  For taxation years ending after December 31, 2018, the small business deduction will be reduced by $5 for every $1 of passive income a corporation (and associated corporations) earns over $50,000 and is completely eliminated if the corporation earns over $150,000 of passive income. It is important to note that it is the passive income of the prior year that is used to calculate the reduction.

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How the 2019 Passive Investment Income Changes Affect Your Small Business