Thursday, May 7, 2015

Active Business Income Consultation

It’s nice to be asked for your opinion.

The federal government is asking for comments about the criteria used to distinguish between active business income and investment income earned by corporations.

The distinction is important.  The first $500,000 of annual income from an active business qualifies for a special low corporate tax rate.  Income in excess of that threshold is taxed at a higher rate (but one that is still below the rate that applies to investment income).  The lower rate provides the corporation with more after-tax income that can be invested back into the business operations or passed up to a special purpose holding entity for other investment uses.  In contrast, investment income is taxed at full rates with a partial refund of some of that tax when the corporation pays a taxable dividend (the refund is approximately equal to the tax that the dividend recipient will pay).
If the principal purpose of a business is to derive income from property (such as rental income from the use of real estate), the income generated by the business is considered investment income unless the business employs more than five full-time employees throughout the year.

Concern has been expressed about how this distinction applies in the case of self-storage facilities and campgrounds.  While not specifically mentioned in the budget materials, this issue also applies in the case of many roadside motels and mobile home parks.  Usually, smaller-scale operations of these types do not employ more than five full-time employees throughout the year.  For example, campgrounds and roadside motels are often seasonal operations.  However, the business is more akin to a business that requires active management than a passive form of investment.

The government has invited interested persons to submit comments no later than August 31, 2015.  Comments should be sent to by email to

If you send in a submission, please indicate whether you consent to having the submission posted on the Department of Finance website.  If you consent, indicate the name (your name or the name of your organization) that should be identified on the website as having made the submission.  Submissions should be provided electronically in PDF format or in plain text.  The Department will not post submissions that do not clearly indicate consent to posting.

I suggest that you clearly consent to having the submission posted on the Department of Finance website.  If your submission is posted, there is a better chance that others might support your ideas.  Your submissions will have the chance to go tax-world viral.

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The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.