Small Business Deduction Flashcards
What is Active Business Income?
Income earned from a business source, including income incidental to the business. Does not include income from a specified investment business, personal services business, or specified corporate income.
What is a Specified Investment Business?
A specified investment business is a business with the principal purpose of deriving income from property, including interest, dividends, rents, or royalties.
What is a Personal Services Business?
A personal services business is a business that a corporation carries on to provide services to another entity (such as a person or a partnership) that an officer or employee of that entity would usually perform. Instead, an individual performs the services on behalf of the corporation. That individual is called an incorporated employee.
When is corporate income considered to be derived from a Personal Services Business?
- The incorporated employee who is performing the services, or any person related to him or her, is a specified shareholder of the corporation, and
- The incorporated employee would, if it were not for the existence of the corporation, reasonably be considered an officer or employee of the entity receiving the services.
When is income from a Specified Investment Business eligible for the small business deduction?
- The corporation employs more than five full-time employees in the business throughout the year, or
- An associated corporation provides managerial, financial, administrative, maintenance, or other similar services to the corporation while carrying on an active business, and the corporation would have to engage more than five full-time employees to perform these services if the associated corporation were not providing them.
When is income from a Personal Services Business eligible for the small business deduction?
The corporation employs more than five full-time employees throughout the year or provides the services to an associated corporation.
How is the Small Business Deduction ground down?
The SBD is reduced on a straight line basis for Canadian-controlled private corporations and associated corporations having between $10M and $15M of taxable capital employed in Canada.
What type of income is eligible for the Small Business Deduction?
Active Business Income
What is Specified Corporate Income?
Specified corporate income is any income a CCPC earns by providing property or services to another corporation, where”:
- that CCPC,
- one of its shareholders, or
- someone that does not deal at arm’s length with that CCPC
holds a direct or indirect interest in the other corporation.
What is explicitly excluded in the definition of Specified Corporate Income?
Specified Farming or Fishing Income.
What is Specified Farming or Fishing Income?
- The income is from the sale of the farming products or fishing catches of the corporation’s farming or fishing business to another corporation, and
- The corporation deals at arm’s length with the other corporation.
Is Foreign Business Income included in the calculation of Active Business Income?
No
Which schedule must be filled out by a corporation that is a partner or designated partner in a partnership in order to calculate Active Business Income?
Schedule 7
How is the business limit allocated to regular corporate partners of a partnership?
The business limit is allocated on a pro-rata share, per their partnership interest.
How is the business limit allocated to designated corporate partners of a partnership?
The business limit is nil unless an amount is assigned from a member of the partnership.
