The $50,000 passive income rule inside a Canadian corporation, in plain English

Under Canadian tax rules, the first $500,000 of active business income inside a Canadian-Controlled Private Corporation (CCPC) generally qualifies for the Small Business Deduction (SBD), resulting in a significantly lower corporate tax rate.

However, once your corporation and its associated corporations earn more than $50,000 of Adjusted Aggregate Investment Income (passive income) in a year, the $500,000 small business limit is gradually reduced by $5 for every $1 of passive income above $50,000—eliminating the small business limit entirely at $150,000 of passive income.

Coordinating corporate investment selection, Capital Dividend Account (CDA) planning, and tax-exempt corporate-owned insurance can help preserve your small business deduction while growing long-term wealth.