ARTICLE · 13 DECEMBER 2018

Breaking Down Changes To The Small Business Deduction

Collins Barrow National Incorporated

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In Canada, corporations may claim a small business deduction on their corporate tax returns, effectively reducing the corporate tax rate on the first $500,0001 of taxable income from active business income.

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In Canada, corporations may claim a small business deduction (SBD) on their corporate tax returns, effectively reducing the corporate tax rate on the first $500,000¹ of taxable income from active business income (ABI). ABI does not include aggregate investment income.

Aggregate investment income (AII) includes:

taxable capital gains in excess of allowable capital losses (current, carried forward, carried back); and
property income (i.e. interest income, rental income, royalties, and dividends included in calculating taxable income).

All is calculated net of expenses. The Canada Revenue Agency (CRA) permits a reasonable allocation of direct and indirect expenses when determining All, including rental expenses, advisory and professional fees, etc.

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