Passive Income Rules Ontario

Passive income earned by the corporation includes income generated from rental properties and income from investments such as marketable securities including taxable capital gains and interest income.

Passive income rules ontario. Staff with files from the canadian press. Corporations that have a certain threshold of income from passive investments. If your corporation has more than 500 000 in net professional income then your allowed passive income drops to 50 000. The 2018 federal budget announced a new taxation regime that would reduce the business limit on a straight line basis for ccpcs that have between 50 000 and 150 000 of investment income for taxation years that begin after 2018.

The good news is that the amount resets the following year with no carryover. This has a dramatic effect on the amount of tax on that 500 000. At 150 000 of passive income none of the active business income will qualify for the small business tax rate. Now for every 1 of passive income over 50 000 the small business deduction level of 500 000 will be reduced by 5.

This equates to a full reduction of the small business deduction when passive income is greater than or equal to 150 000. If your corp make less it simply means that your passive income threshold is higher without impacting your company in terms of taxes. These new cra passive income changes will first apply to fiscal years that start in 2019 and will reduce the maximum small business deduction available to a ccpc or associated group of ccpcs by 5 for every 1 of passive investment income earned in. To be exact for every 1 in excess of 50 000 5 in the small business deduction will be reduced.

If you have 300 000 in net professional income your passive income can only reach 90 000 before you are affected. The 2018 federal budget saw the introduction of a set of new passive income rules in canada to restrict the small business deduction for ccpcs that alone or as part of an associated group earn more than 50 000 of passive investment income. Anything above 50 000 in passive income will reduce the amount of the small business deduction that a corporation can apply to its earnings. So if your corporation earns regularly 200k per year you can generate passive income of up to 110k without any tax penalties.

Passive income rules until 2018 the first 500 000 of active business income earned by canadian controlled private corporations ccpcs was eligible for the small business deduction sbd and a lower federal tax rate of 10 which was reduced to 9 for the 2019 taxation year. The government s first fall economic statement which covers the 2018 2019 year says that the province will not parallel the federal government s plan to gradually.