Small Business Passive Investment Income Impact Calculator concept - (PIIIC)

The Small Business Passive Investment Income Impact Calculator concept (PIIIC) demonstrates to your business owner clients the tax impact of losing access to the small business deduction (SBD) because their corporation has too much passive investment income.

Use this concept to demonstrate to your business owner clients the tax impact of losing access to the small business deduction (SDB) because their corporation has too much passive investment income.

What is passive investment income?

Passive investment income is income that is not directly related to the business activities of a corporation. As a business grows, it can accumulate cash, a portion of which is not needed to conduct day-to-day operations.

The passive income of a business is precisely that part of its income that it derives from its investments. This includes but is not limited to: interest, dividends, capital gains, and rental income. Passive investment income is therefore opposed to income directly related to the business activities of the company.

What is the impact of having too much passive investment income for the corporation?

If you work with business owners, you know that too much passive investment income will limit access to the small business deduction (SBD) of a Canadian Controlled Private Corporation (CCPC). Passive investment income greater than $50,000 a year will limit access to the SBD. In addition, once the CCPC’s passive investment income reaches $150,000, the business limit will be reduced to zero.

Advantages

You will be able to produce a report that will illustrate the tax impact of having passive investment income inside a corporation. The calculator will ask you for the following information: active business income, the amount of the investment portfolio (including asset allocation), net rental income if applicable and the province of residence of the corporation.

The final report will provide you with the financial impact of not using one of the solutions available to mitigate against the additional taxes and ensure that corporate passive investment income does not exceed the $50,000 limit.

By knowing the yearly projected corporate taxes over a 10-year period and the overview of the financial impacts, you will be able to advise your clients on advantageous solutions available for their corporation and thereby, potentially helping them save several thousands of dollars in taxes.

Applicable products

There are several strategic corporate planning ideas available to mitigate the potential additional taxes and ensure the corporation does not exceed the $50,000 limit.

Some ideas include:

  • Taking out an exempt life insurance
  • Setting up an Executive Health Plan (based on client's needs)
  • Setting up an individual pension plan (IPP)
  • Maximizing shareholder RRSPs and TFSAs
  • Deferring capital gains (except on sale of property that is excluded from AAII definition)
  • Making investments that defer taxable income such as Guarantee Advantage.

The Small Business Passive Investment Income Impact Calculator concept (PIIIC) is ideal for:

  • Life and health advisors working with business owner clients who:
    • Own shares of an operating company and possibly a holding company
    • Own shares of an operating company with a significant amount of passive assets
    • Whose corporations qualify for the small business deduction (SBD)

Sales approach

Here are a few questions to ask your business owner client:

  • Does your corporation generate active business income?
  • Does your corporation hold an investment portfolio?
  • Does your corporation own one or more investment properties?
  • Would you like to reduce taxes being paid by your corporation?
  • Would you like to be able to access funds quickly in the event of an emergency?
  • Are you aware of the rules introduced by CRA after 2018 regarding some limitations to the Small business Deduction limit if the Passive income of your corporation exceeds $50,000?

We are launching the calculator tool to help your business owner clients figure out if they need to be concerned about these tax rules.

The concept can be illustrated through the Dsign illustration system. There is no need to complete the client information and/or the product section. Simply go to strategy – concepts – Business Owners.

Procedure to illustrate the Passive Investment Income Impact Calculator concept (PIIIC):

  1. Click the Sales Strategies tab.
  2. Open the Concepts section.
  3. Select Passive Investment Income Impact Calculator in the drop-down menu.
  4. Download the concept by clicking on Export. When the browser has finished downloading the spreadsheet, open the spreadsheet directly from the link in the browser or from your Downloads folder.
  5. When opening the spreadsheet, activate the contents and macros.

  6. The following entry screen will be displayed:

  7. Select the PDF to view report.
  8. The Passive Investment Income Impact concept report will appear in PDF format.
  9. A copy of the report will automatically save in the directory entitled: "\Downloads\Desjardins". You will not need to manually save the document.
  10. When you have finished consulting the report return to the input screen and click Quit.