Where a corporation earns income eligible for the “small business deduction” (SBD) and income that is ineligible due to the “specified corporate income” (SCI) provisions, can it allocate expenses to the activities generating the latter type of income in order to maximize the income eligible for the SBD. CRA responded:
[C]lause 125(1)(a)(i)(B) refers to the portion of a CCPC’s income that is described in subparagraph (a)(i) of the definition of SCI in subsection 125(7) for the year. … [T]he word “income” in this section refers to “net income”.
Accordingly, if expenses are disproportionately allocated when calculating the income described in subparagraph (a)(i) of the definition of SCI in subsection 125(7) for the year …[o]nly the expenses that are reasonable to consider to be attributable to the activities generating the income described in subparagraph (a)(i) of the definition of SCI should be considered.
The CRA summary stated:
Whether streaming expenses can be used to circumvent the SCI rules.Position: Likely not.