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Glossary  -> Active Business Income

Active Business Income

Income Tax Act s. 125(7)

The first $500,000 (business limit for 2012, federally) of active business income of a Canadian controlled private corporation, or CCPC, is taxed at lower rates.  The tax reduction is called the small business deduction.

Income from most businesses qualifies as active business income.  However, active business income does not include investment income, income from a specified investment business, or income from a personal services business.  Investment income, which is excluded from active business income, includes taxable capital gains less allowable capital losses, property income less property losses, and foreign business income.

Rental and leasing income are normally considered income from property.  However, this income may, in some circumstances, be considered active business income, as per paragraph 7 of IT-73R6 (Archived) The Small Business Deduction:

A corporation may derive income from holding property in Canada (e.g., income in the form of real estate rentals, interest, or royalties). If such income is received or receivable from an associated company and the amount is or may be deductible in determining the associated company's income from an active business carried on by it in Canada, then paragraph 129(6)(b) deems the income in the recipient's hands to be income from an active business carried on by it in Canada.

For more information on this see our article:  Rental Income - Property Income or Business Income for Tax Purposes?

See our tables of corporate income tax rates, which also show the business limits for each province and territory.

Revised: October 26, 2023


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