Private corps making less than $50,000 per year qualify for the small business tax break. Businesses with passive yearly income more than $50,000, cannot use the small business tax rate and all their business income is subject to the higher general income rate. Keep in mind that it is the taxable passive income that is used rather than all passive income. This distinction means that the passive income deduction can be preserved by using tax reduction portfolio strategies.

Key Takeaways:

• Clients can preserve the small business deduction if taxable passive income is below $50,000/year.
• Clients without the small business deduction (i.e., greater than $150,000 passive income per year or more than $15 million capital) should customize a portfolio to reduce taxable income.
• Tax-efficient asset allocation through good portfolio design may reduce the passive income generated by $2-3 million of capital in order to continue to enjoy the small business tax rate.

“The new rules state that if passive income exceeds $50,000 per year, then access to the small business tax rate (10% to 18%, depending on the province) will drop by $5 for every $1 of passive income above $50,000.”

Read more: http://www.advisor.ca/tax/tax-news/how-portfolio-structure-can-save-tax-for-clients-with-private-corps-260989