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November 24, 2022

What Is the Corporate Investment Income Tax Rate in Canada?

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Corporations in Canada have access to a wide range of investment revenue. Income from properties, such as rent, dividends, interest, capital gains, and royalties, makes up most of the investment income. Investment income, also referred to as passive income, is unrelated to an organization’s active core business revenue. Investment income may represent a sizeable amount of a company’s overall revenue, depending on the size and industry of the corporation and its activities.

In Canada, only half of a capital gain is taxable. Because of this reason, the corporate investment income tax rate on the capital gains of any individual or business is 50% of the tax rate on investment income.

New regulations governing the company tax rate on investment income went into effect in January 2019. The tax rate on your corporation’s ordinary business revenue rises if your passive investment income exceeds the current threshold of $50,000 per year.

Source: freepik.com

This new legislation intends that corporate profits go directly into the business rather than being used to increase passive income. Now, CPCCs are dissuaded from employing specific corporate structures to generate sizable investment income and do not have the incentive to raise their stagnant investment revenues to maintain a low corporate income tax rate.

If we were to look into the corporate investment income tax rate of some Canadian regions as of 2020, they are as follows.

The federal investment income tax rate is 38.7%, while Alberta’s investment income tax rate is 10%. Nova Scotia has an investment income tax rate of 16%. The rate in Quebec is 11.5%. Manitoba, BC, Saskatchewan, Nunavut, and Yukon has an investment income tax rate of 12%.

Source: freepik.com

The corporation is typically regarded as a designated investment business and, therefore, not qualified for the small business deduction when its primary operation is to generate investment income. The revenue from the property is considered investment income, as you already know.

There is no dividend tax credit or gross-up for dividends received by a corporation p. Dividends from Canadian corporations may qualify for tax deductions under s. One hundred twelve of the Income Tax Act (ITA); however, Part IV tax (ITA sections 186–187) may still be due on these dividends at 38 1/3%. It was 33 1/3% for taxation years ending before 2016.

Source: freepik.com

The refundable dividend tax on hand (RDTOH) for the corporation is included in Part IV of the tax. When dividends are paid to the shareholders of private corporations, the RDTOH is available as a dividend return to the corporation. A 10.67% refundable tax is included in the federal tax rate of 38.7% on investment income.

The refundable tax rate was 6.67% for tax years previous to 2016. This is 123.3 of the ITA, which is incorporated into the RDTOH. The RDTOH was suggested for modification in the 2018 federal budget rather than elimination, and the business limit based on CCPC investment income was considered for reduction. Get qualified tax guidance on the small business deduction if you have a CCPC and sizable investment income.

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