As outlined in the March Tax Alert, the 2018 Budget includes a
measure designed to slow the accumulation of passive investments
within active corporations. This measure is based on a calculation
that considers both the amount and the type of investment income
earned in a corporation. Understanding this calculation will guide
an investor in developing a tax-efficient investment strategy going
forward.
The calculation
Aggregate investment income (AII) is carved out from active
business income and is both ineligible for the small business
deduction and subject to a higher tax rate than ordinary business
income. The definition of AII remains unchanged with the 2018
Budget but has become the starting point for the calculation of
adjusted aggregate investment income (adjusted AII). A corporation
is entitled to $50,000 of adjusted AII. Thereafter, its small
business deduction limit decreases by $5 for every additional $1 of
adjusted AII and is completely eliminated at
