Active vs. passive income in a corporation

Active business income comes from running your business and can qualify for the low small business rate.

Investment income, such as interest and most rent, is taxed at about 50% in a CCPC, depending on the province. Part of this tax can be refunded when the corporation pays taxable dividends. This system stops a corporation from being a lower-tax investment account.

Dividends from Canadian public companies are treated differently, and may be subject to a refundable tax. Half of capital gains can often be paid out tax-free through the capital dividend account.

Passive income above $50,000 can also reduce the small business deduction.