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LAB 01 — Business Owners

Passive income & small business deduction calculator

Is your company's investment income eating your small business rate? Drag the sliders — computed in your browser, nothing you enter leaves this page.

ON · BC · AB — parameters for all three provinces built in; the mechanics apply Canada-wide (Quebec’s system differs in some details).

Assumes a CCPC with enough active business income to use the remaining limit. AAII = interest and rent/royalty income (in full) + portfolio dividends + the taxable half of realized capital gains. Dividends count at their actual cash amount — gross-up and dividend tax credits are personal-tax concepts that don't exist at the corporate level; Part IV tax and the RDTOH refund don't affect the grind and aren't modelled. unrealized growth and growth inside an exempt life-insurance policy don't count. The law sets this year's limit from last year's AAII (shown same-year here). Rates (from July 1, 2026): combined small-business ON 11.2% · BC 11% · AB 11%; the cost of a ground limit is shown per province. Educational estimate, not advice.

Adjusted aggregate investment income (AAII)
Federal small business limit left
$500K federal limit
Extra corporate tax per year

Key numbers — passive income & the small business limit (2026)

  • Threshold: $50,000 of AAII a year; every extra $1 grinds $5 of limit — the federal $500K is gone at $150,000 (ITA s.125(5.1))
  • AAII counts only realized income: interest, rent and royalties in full; half of realized gains — unrealized growth doesn't count
  • Cost of a fully ground limit: ON $30,000/yr (province doesn't parallel — federal 6% only) · BC $80,000 (16%) · AB $60,000 (12%)
  • Growth inside an exempt life-insurance policy does not count toward AAII

What is the passive income grind?

A CCPC's federal small-business limit shrinks once corporate investment income (AAII) passes $50,000 a year — $5 of limit lost per extra $1, gone at $150,000. What it costs depends on the province: Ontario doesn't parallel the grind, so active profits go from 11.2% to 17.2% (the provincial 2.2% survives); BC and Alberta grind both levels, to 27% and 23%.

Where to go from here: LAB 07 shows how the pay decision and retained profit decide when you cross this line; the full guide to passive income and the small business deduction; or the corporate-owned insurance container.

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// the only variable in this plan that gets more expensive every year is your age