Corporate tax
The $50,000 passive income rule and your small business limit
How passive investment income above $50,000 grinds a professional corporation's small business limit, what the grind really costs, and what to do about it.
6 min read
Services
Investments
Where the surplus goes once it exists: inside the corporation, in registered accounts, or personally. The order matters more than the product.
What we read
- What the corporation holds now, and what it earns in interest, dividends and realised gains.
- Your RRSP, TFSA, FHSA and RESP room, and what is already in each.
- The annual surplus you expect to keep after salary, tax and spending.
- Any pension you have or could join, including HOOPP.
What we assess
- Whether corporate investment income is heading towards the $50,000 grind, and at what yield.
- Whether registered room should be filled before the corporation, and in what order.
- What the portfolio's composition does to adjusted aggregate investment income, not just to its return.
- What your accountant will have to report, and what refundable tax accounts it creates.
The trade-off
| Inside the corporation | Personally | |
|---|---|---|
| Tax on the dollar before it is invested | 11.7 per cent blended in 2026 on active income within the small business limit, so more is left to invest. favourable | Up to 53.53 per cent in Ontario, so less starts working. |
| Tax on the income it earns | Investment income is taxed at a high refundable rate, recovered when dividends are paid out. | Taxed once at your personal rate, with the dividend tax credit and the capital gains inclusion rate applying. |
| Effect on the small business limit | Above $50,000 of adjusted aggregate investment income, the limit falls $5 for every $1, reaching nil at $150,000. | No effect. favourable |
| Registered room | Does not use RRSP or TFSA room, and does not create it. | Fills RRSP, TFSA and FHSA room, which is sheltered and cannot be reclaimed once a year passes. favourable |
| Creditor exposure | Corporate assets sit with the corporation and its liabilities. | Some registered plans have creditor protection in Ontario, depending on the type and beneficiary. |
| On death | Shares are deemed disposed of, and without planning the same value can be taxed twice. | Registered plans roll to a spouse; the rest is taxed once on the final return. favourable |
Related reading
Corporate tax
How to take money out of your professional corporation
The six routes out of an Ontario professional corporation, what each one costs, and the order most physicians and dentists should use them in.
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Corporate tax
Salary or dividends for an incorporated physician in 2026?
Integration makes the tax cost of salary and dividends close. What separates them is RRSP room, CPP, HOOPP eligibility and the passive income grind.
7 min read
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