Find out if passive income in your business will result in more tax

The Federal Government created a lot of debate in the tax and business community around the way passive income is taxed within privately controlled corporations. The rules announced in the 2018 Federal Budget and are now law and affect taxation years ending after December 31, 2018.

Many business owners still don’t fully understand the new rules. Below is a calculator tool created by PPI  (ppi.ca) that helps explain the tax changes.

 

First: What do you need to know?

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The passive investment income rules result in a reduction in the small business deduction (SBD) if the corporation (or associated corporations) has passive income that is greater than $50,000 in the previous year. The SBD is reduced $5 for every $1 of passive income over the $50,000 threshold resulting in the elimination of the SBD at $150,000 of passive income.

 

Second: How to Find Out if Your Corporation May be Affected

Find out if your corporation is affected with the new rules by using the Passive Investment Income Calculator. The tool will provide you with an idea as to what the increase in taxes may be by entering in your active business income, passive investment balance, assumed rate of return, and Province.

 

Third: Want to Know More About Your Situation?

The new Passive Investment Income Rules can be quite complex and every situation is unique. There are solutions to help you save on tax by reducing your passive income but still reap the benefit from an alternative, low risk investment class . Your best option is to speak to your CPA or professional advisor to help determine the best solution for you and your corporation moving forward.   

 

Contact me if you want more information on this topic. I am happy to share my resources or have a conversation about your specific situation.

Ryan Witmeyer