Taxation in Active Versus Passive Business Income

Wealth Without Bay Street 163: How Active Versus Passive Business
Income Is Taxed In A Canadian Controlled Corporation

Are you aware of the tax differences between active and passive income in the corporate world? It's important to understand the details surrounding both types of income, especially with rule changes that have affected definitions many of us widely believe.

In all honesty, the current tax rules for passive income are quite unfriendly
towards earners. Join Richard and Henry in discussing these issues to avoid any unpleasant surprises when it comes to filing taxes.

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IN THIS EPISODE, YOU WILL LEARN:
[01:22] Introduction: What's the difference between passive and active
income taxes in a Canadian-controlled corporation?
[10:15] Why the marketed feature of incorporation is that it pays lower taxes isn't always true
[20:06] Make sure that you're serving more than one main client throughout a given tax year
[26:51] Flow Chart: Property source and the taxable capital gains source
[30:04] The small business deduction explained
[39:44] Incorporating their real estate
[45:08] Passive income test
[51:02] Comparison of two corporations with investment incomes

QUOTES:
● The passive income tax rules are not particularly friendly for anyone
earning income.
● Once you introduce a corporation – cost and complexity become much
higher.
● The onus in our tax world, at least in Canada, is always on the back of
the taxpayer.
● For real estate investors, rental income and capital gains are significant
to understand the effects of the decisions you make in the future.
● Most corporate owners end up falling into the income investment trap.
Sometimes we're not putting our vision forward and looking at what
that next tax bill will look like.
● You can be tax-exempt in a good way that allows your capital to
continue to grow.

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5 Myths of the Canada Pension Plan: https://www.fraserinstitute.org/5-myths-of-the-canada-pension-plan
See your own CPP contributions via your Service Canada Account:
https://www.canada.ca/en/employment-social-development/services/my-account.html
CPP Contribution rates, maximums and exemptions: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html
F2022 Annual Report on CPP Investments: https://www.cppinvestments.com/the-fund/our-performance/financial-results/f2022-annual-results/

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