The Passive-Income Grind (AAII)
How investment income inside your corporation quietly shrinks the $500,000 small-business deduction — and what each extra dollar really costs.
Your CCPC pays roughly 11.2% on its first $500,000 of active income — the engine of the Vault. But once AAII exceeds $50,000 in a year, the CRA claws back $5 of your $500,000 limit for every $1 of excess. At $150,000 of passive income, the small-business rate is gone entirely.
The grind is the tax system’s rent on idle corporate cash. Retained earnings parked in interest-bearing accounts produce the least tax-efficient income there is — and every dollar of it counts fully toward AAIIAAII — Adjusted Aggregate Investment Income
Most passive investment income earned across the corporate group in a year. Above $50,000, each extra dollar removes $5 of the small-business deduction limit. Full glossary →, a double penalty.
This calculator shows your reduced small-business limit, the dollar cost of the grind on this year’s active income, and how far you sit from the $150,000 cliff. The fix is rarely “stop retaining” — it is changing what the retained dollars earn: capital-gains-oriented portfolios (only half counts), or exempt insurance growth (none counts).
Most passive investment income earned across the corporate group in a year. Above $50,000, each extra dollar removes $5 of the small-business deduction limit. Full glossary → threshold are shared among associated corporations. A HoldcoHoldco — Holding Corporation
A corporation that holds investments or shares of an operating company — the vault behind the storefront in the two-corporation architecture. Full glossary →’s investment income grinds the OpcoOpco — Operating Corporation
The corporation running the active business — the storefront in front of the Holdco vault. Full glossary →’s rate.
Most passive investment income earned across the corporate group in a year. Above $50,000, each extra dollar removes $5 of the small-business deduction limit. Full glossary →. If your corporate cash is idle, the grind is the invoice.
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Questions to ask your advisor
What was my AAII last year, and how close am I to the $50,000 floor?
What did the grind cost me in extra corporate tax on my last T2?
Would restructuring passive holdings — capital-gains-oriented, or exempt insurance — reduce my AAII without hurting returns?
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Educational illustration, not advice. This tool is provided for educational purposes only and does not constitute financial, tax, legal, accounting, or insurance advice. Results are estimates, not promises — hypothetical illustrations are projections only. Figures use Ontario rates as of the date stamped above; rates and limits change. Confirm current figures and your specific situation with a CPA, tax lawyer, and licensed insurance advisor before acting.