Specified Investment Business (SIB) AND Personal Service Business (PSB)

Specified Investment Business (SIB) AND Personal Service Business (PSB)

General

  • Small Canadian Controlled Private Corporations (CCPC’s) are eligible for the Small Business Deduction
    • Where the first 500K in active business income gets taxed at a combined rate of 13.5% (Ontario + Federal)
  • Small business deduction is based on active business income earned in Canada
  • Specified Investment Business Income and Personal Service Business Income are not considered active business income unless they are earned from an associated corporation
  • Therefore, SIB and PSB earned from non-associated corporations are not eligible for the small business deduction

Specified Investment Business (SIB) Income

  • SIB Income = Property income and taxable capital gains earned by a corporation
  • SIB Income is considered Active Business Income when the following is met:
    • The corporation employs more than 5 full time employees throughout the year; or
    • The SIB Income was earned from providing services to an associated corporation
  • This means that a corporation that is in the business of earning property income (like rent) cannot be eligible for the small business deduction unless they employ more than 5 full time employees
  • This rule was put in by CRA to discourage individuals to incorporate a corporation to earn property income and capital gains and pay the low small business rate (13.5% combined)

Personal Service Business (PSB) Income

  • PSB Income = employment income earned through a corporation (an incorporated employee)
  • The more detailed definition of  Personal Service Business:
    • An individual who performs the services on behalf of the corporation (the incorporated employee); or a person related to the incorporated employee owns more than 10% of the voting shares of the corporation earning the employment income
  • PSB Income is considered active business income when:
    • The corporation employs more than 5 full-time employees throughout the year; or
    • The PSB Income was earned by providing services to an associated corporation
  • This rule was put in by CRA to discourage individuals to incorporate and earn their employment income through a corporation and pay the small business tax rates (13.5%)

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