Entrepreneurship & Small Business

incorporated, passive investment income?

  • Last Updated:
  • Nov 14th, 2018 11:57 am
[OP]
Member
Oct 28, 2015
265 posts
35 upvotes
north york, ON

incorporated, passive investment income?

incorporated , passive investment?
Hi all, I am currently incorporated and I wonder should I wish to invest in stock market, which will be deemed as "passive earnings" and taxed heavily, that what if I hired a person with certain financial degree managing these stocks, will it qualify lower corp tax?

Thanks
10 replies
Deal Guru
Aug 2, 2010
12693 posts
3114 upvotes
Here 'n There
taxed 'heavily' as you say. No lower tax if someone else does it. That would be too easy...
[OP]
Member
Oct 28, 2015
265 posts
35 upvotes
north york, ON
eonibm wrote:
Nov 10th, 2018 3:12 pm
taxed 'heavily' as you say. No lower tax if someone else does it. That would be too easy...
then when does it accounted as "active investment income"?
If so then , most financial firm's stock holdings would all be accounted as "passive investment" and taxed heavily....
Penalty Box
Dec 27, 2013
7617 posts
3449 upvotes
Toronto
I think as a small business, you benefit from the small business tax credit, and passive income has beneficial tax treatment up to $50,000... I'm not sure how that works exactly, it's best you speak to accountant. but my understanding was you can basically invest a $1,000,000 portfolio, and live of the 5% returns, at a specialty tax rate within the corporation.
and then you pay this to yourself as a dividend.

anyway, accountant will be best person for this.
Deal Guru
Aug 2, 2010
12693 posts
3114 upvotes
Here 'n There
daivey wrote:
Nov 11th, 2018 3:04 pm
I think as a small business, you benefit from the small business tax credit, and passive income has beneficial tax treatment up to $50,000... I'm not sure how that works exactly, it's best you speak to accountant. but my understanding was you can basically invest a $1,000,000 portfolio, and live of the 5% returns, at a specialty tax rate within the corporation.
and then you pay this to yourself as a dividend.

anyway, accountant will be best person for this.
And when you pay it to yourself the concept of integration kicks in to eliminate any benefit.
Penalty Box
Dec 27, 2013
7617 posts
3449 upvotes
Toronto
eonibm wrote:
Nov 11th, 2018 5:28 pm
And when you pay it to yourself the concept of integration kicks in to eliminate any benefit.
well there you go. tax rape full circle.
Deal Guru
Aug 2, 2010
12693 posts
3114 upvotes
Here 'n There
bendover tax
Newbie
Jan 18, 2017
87 posts
57 upvotes
This works if you have five full-time employees. Failing that, the income is treated as passive income and generally speaking subject to a higher tax rate.

Is your incorporated company an active business, or a holding company? If it's an active business, there is still an advantage to holding investments in the company. The TOSI rules have made this a bit more inconvenient, but the math relating to the tax deferral still works.
xuanzh wrote:
Nov 10th, 2018 10:49 am
incorporated , passive investment?
Hi all, I am currently incorporated and I wonder should I wish to invest in stock market, which will be deemed as "passive earnings" and taxed heavily, that what if I hired a person with certain financial degree managing these stocks, will it qualify lower corp tax?

Thanks
Last edited by crossborderguy on Nov 12th, 2018 12:07 pm, edited 1 time in total.
______
Canadian & US tax guy
Member
Nov 12, 2014
446 posts
248 upvotes
Kingston, ON
The 5% on 1,000,000 only impacts the ability to claim the SBD rate of 15% on active income; passive income is still taxed at 50% with about 30% of that being refundable if you pay out sufficient dividends to get the refundable portion back.
Newbie
Feb 7, 2018
22 posts
3 upvotes
Active vs Passive Income:

Active Income: Earning income off of services or sales of product. You have a direct hand in earning income (not interest income).
Passive Income: Earning income off of things you do not have a hand in (such as interest, stock payouts, rental income, etc). Passive is basically any income that you earn money from from investing other income to.

Justyn
Newbie
User avatar
Oct 30, 2017
45 posts
12 upvotes
Ottawa, Ontario
xuanzh wrote:
Nov 10th, 2018 10:49 am
incorporated , passive investment?
Hi all, I am currently incorporated and I wonder should I wish to invest in stock market, which will be deemed as "passive earnings" and taxed heavily, that what if I hired a person with certain financial degree managing these stocks, will it qualify lower corp tax?

Thanks
hey xuanzh, to get to lower tax rate, you need to convert it to business income, active. in your case, you need to actively trade in the stock market and make it as business activity. that will make it qualify for business income. that will be the easiest way. the draw back is that you no longer get capital gain, but business revenue if you gain on the sale of stock. and your stock profolio will be your inventory
thank you very much
Philip Kwok, CPA, CGA

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