At all relevant times, a Canadian-controlled private corporation (ACo) with a calendar taxation year and having income of $500,000 per year of active business income is associated with another CCPC (BCo) with a November 30 taxation year end. BCo has taxable capital of less than $3,000,000, and earns $70,000 of interest from arm’s length Canadian sources. In which taxation year will ACo have its business limit reduced under s. 125(5.1)(b)? CRA responded:
The passive income reduction will apply to taxation years that begin after 2018. …
As such, in the example provided, ACo would be first subject to the passive income reduction in its first taxation year beginning after 2018 (i.e., ACo’s taxation year ending December 31, 2019). For its taxation year ending December 31, 2019, ACo would include the total of all amounts each of which is the adjusted aggregate investment income of ACo (for taxation year ending December 31, 2018) and BCo (for taxation year ending November 30, 2018) that ended in the preceding calendar year (calendar year ending December 31, 2018).