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Up to 50k passive income, 500k
January 1, 2019
11:20 am
hotmony
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Does that mean i can incorporate a non-operating business and pay the low 9% tax rate on up to 50k in interest?

Can i incorporate a non-operating business and earn 500k at the lower corporate tax rate?

What evidence does cra need.

January 1, 2019
4:12 pm
Loonie
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Talk to a lawyer to understand all the implications and costs involved.
CRA takes a dim view of people who try to avoid taxes without a legitimate reason, and so do I.
Of course, talking to a lawyer will cost you money which you won't want to pay, but you'd need one anyway to incorporate.
Owning a corporation can be a bit of a headache although they make sense when there is a legitimate reason. Bank fees; more returns to fill out for CRA, etc etc.

January 1, 2019
4:50 pm
sellis
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Pretty sure the low tax rate only applies to active business income. I don't think that applies to passive income.

January 1, 2019
4:52 pm
hotmony
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Before they changed the probate rules they didn't enforce it so many estates skipped out on paying i assume. I'm wondering if the same was happening with business taxes why the government felt the need to crackdown. Rental income someone rents a few rooms who reports. Gic investors carry more of the load, tax burden.

January 1, 2019
9:23 pm
Norman1
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This interpretation of the changes to small business corporate taxation is absurdly far from the truth.

sellis is correct. The small business corporate tax rate is only for active business income. Passive income in a small business corporation has always been taxed at regular general corporate tax rates or higher.

What is new is that each $1 of passive income above $50,000 will now grind $5 off the $500,000 small business limit that implements the lower small business corporate tax rate on active income. This is from PWL Capital: The Impact of New Passive Income Rules for Canadian Private Corporations:

The new passive income measures for Canadian Controlled Private Corporations eliminate five dollars of the small business limit for each dollar of passive income over $50,000 earned by a corporation or its connected corporations. The reduction to the small business limit will occur on a straight line basis as passive income increases, to a maximum passive income level of $150,000 at which point the small business limit will be gone ($5 * $100,000 = $500,000). These measures apply to years that begin after 2018.

Within the small business limit, qualifying active business income will be taxed at a rate of 9% in 2019. This is compared to the higher 15% federal tax rate on general business income. Provincially in Ontario, the small business tax rate on active business income is 3.5%, compared to 11.5% on general business income; the difference is meaningful at both the federal and provincial levels.

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