Personal Service Business (PSB) and Specified Investment Business (SIB) - HTK Academy

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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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