Lines 425 and 426 - Reduced business limit
Large CCPCs that have taxable capital employed in Canada of $15 million or more do not qualify for the SBD. The business limit is reduced on a straight-line basis for CCPCs that have taxable capital employed in Canada of between $10 million and $15 million in the previous year. Similar restrictions apply to any CCPC that is a member of an associated group that has, in total, more than $10 million of taxable capital employed in Canada. Enter on line 425 the reduced business limit for tax years starting before 2019.
For tax years that begin after 2018, the business limit of a CCPC is also reduced if the CCPC, and any other corporation it is associated with, earn combined income from passive investments between $50,000 and $150,000. The business limit is nil once the combined income from passive investments is more than $150,000. This income is calculated in Part 2 of Schedule 7, Aggregate Investment Income and Income Eligible for the Small Business Deduction, and is referred to as the adjusted aggregate investment income.
The reduction in the CCPC's business limit is then the greater of its taxable capital business limit reduction and its passive income business limit reduction for the year. Enter the reduction on new line 422 and the resulting reduced business limit on new line 426.
To calculate the total taxable capital employed in Canada, use the schedule that applies:
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Schedule 33, Taxable Capital Employed in Canada – Large Corporations
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Schedule 34, Taxable Capital Employed in Canada – Financial Institutions
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Schedule 35, Taxable Capital Employed in Canada – Large Insurance Corporations.
If your taxable capital employed in Canada is more than $10 million, file the appropriate schedule with your return.
Use Schedule 23, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit, if you are an associated CCPC. For more information about this schedule, see page 29.
Reference
Subsections 125(5.1) and 125(7)
Assignment of the business limit under subsection 125(3.2)
CCPCs can assign all or part of their business limit under subsection 125(3.2) to another corporation.
Enter the amount of the business limit you assign and the business number of the corporation to which you assign such an amount on page 5 of the T2 return. For tax years starting before 2019, deduct from line 425 the amount you assign and enter the result on line 427. For tax years starting after 2018, deduct from line 426 the amount you assign and enter the result on line 428.
If another corporation assigned all or part of its business limit to your CCPC, file Schedule 7.
References
Subsections 125(3.1), (3.2), and (7)
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