Active Business Income Definition
Only income earned by an Active Business of a Small Business Corporation is eligible for the lower tax rate, by application of the small business deduction, up to the corporation’s small business limit.
But what is active business income?
Simply, “Active business” is defined by the Income Tax Act to be a business that is carried on by a Canadian resident taxpayer that is not one of two types of business. The first type that doesn’t qualify is a “specified investment business”. The second type of business that is not an active business is a “personal services business”. A specified investment business is a business whose primary purpose is to earn income from property (rent, interest, royalties, etc), while a personal services business refers to an incorporated employee. The definitions are a bit more complex, but the simple definitions will suffice in most cases.
Note: Articles are for general information only and do not constitute tax advice nor can they be relied upon. Call Faris CPA for assistance.