Line 426 - Reduced business limit
Line 426 - Reduced business limit
The reduction in a CCPC's business limit is the greater of its taxable capital business limit reduction and its passive income business limit reduction for the year.
Taxable capital business limit reduction
Large CCPCs that have taxable capital employed in Canada of $50 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 $50 million in the previous year. For tax years starting before April 7, 2022, the range is $10 million to $15 million.
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.
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.
Passive income business limit reduction
The business limit of a CCPC is also reduced if the CCPC, and any other corporation it is associated with, earn combined income from $50,000 to $150,000 from passive investments. 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.
Enter the greater amount of the reduction on line 422 and the resulting reduced business limit on line 426.
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 33.
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 4 of the T2 return. 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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