Holdco and Opco are associated and both have 12-month taxation years ending on 30 June 2019 and 2020. Holdco has investment income of $150,000 per year. When does this income affect the business limit of Opco under s. 125(5.1)? CRA stated:
The passive income reduction will apply to taxation years that begin after 2018. However, the passive income reduction may also apply to a taxation year beginning before 2019 if certain planning is undertaken to defer the application of either the passive income reduction or the amendments to section 129.
As such, in the example provided, Opco would be first subject to the passive income reduction in its first taxation year beginning after 2018 (that is, Opco’s taxation year ending June 30, 2020). For its taxation year ending June 30, 2020, Opco would include the total of all amounts each of which is the adjusted aggregate investment income of Opco (for taxation year ending June 30, 2019) and Holdco (include the $150,000 of investment income for the taxation year ending June 30, 2019) that ended in the preceding calendar year (calendar year 2019).