The Passive Investment Rules And Their Associates

By now most advisors are aware that in Budget 2018 the Federal government introduced, among other things, draft legislation to amend the Income Tax Act (Canada) ("Act")¹ that is often referred to as the "Passive Investment Proposals". As with all of the other remnants of the July 18, 2017 Proposals,² the Passive Investment Proposals, while an improvement over what had initially been put forward, continue to be way too complex and ensuring compliance with the Passive Investment Proposals will be time consuming and costly for small business owners.³

Existing subsection 125(5.1) claws back the $500,000 annual small business limit⁴ of a Canadian-controlled private corporation ("CCPC")⁵ once taxable capital⁶ of the corporation together with any corporation with which it is associated⁷ exceeds $10,000,000.⁸ The Passive Investment Proposals will extend the claw-back to situations where the CCPC together with any corporation with which it is associated earns what has