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.
Share and Learn More
To learn more about how this will affect your client’s small business, share the article below and take a look at our Passive Income Calculator.