Allocation Among Associated Corporations
The Business Limit will default automatically if the corporation is a Canadian Controlled Private Corporation (CCPC) and the corporation type did not change during the year.
If you allocate amounts to associated corporations, the business limit for the filing corporation will be automatically reduced so that the total limit for the associated group does not exceed the maximum eligible limit falling within the range of the calendar year to which the agreement applied. As described below, the maximum business limit may be further adjusted in certain circumstances.
Business limit reduction
To correctly determine the business limit reduction, perform the following operations:
- If, in both the given taxation year and the preceding taxation year, the corporation has not been associated with any other corporation, enter the amount of taxable capital employed in Canada of the filing corporation for the preceding year on the line for that purpose in the “Schedule 23 – Agreement among associated Canadian-controlled private corporations to allocate the business limit” section of Schedule 9 WORKCHART. The taxable capital employed in Canada from the last taxation year must be determined within the meaning assigned by subsections 181.2(1) or 181.3(1) or section 181.4 ITA, as the case may be. The amount of taxable capital employed in Canada of the filing corporation for the preceding year will be carried forward automatically when the client file is rolled forward.
- If, in the given taxation year, the corporation is not associated with any other corporation, but was associated with one or more corporations in the preceding taxation year, answer “Yes” to the question Was the corporation associated with another corporation for purposes of the allocation of the business limit in the preceding year (subsection 125(3) ITA)? of the Corporate Identification and Other Information form to trigger the calculations in Part 5 of Schedule 33, Schedule 34 or Schedule 35, depending on whether the corporation is an insurance corporation, a financial institution or a corporation other than an insurance corporation or a financial institution. If you roll forward a file, the question will be answered based on whether the corporation was associated or not for the allocation of the business limit during the preceding year.
- If, in the given taxation year, the corporation is associated with one or more particular corporations, enter the amount of taxable capital employed in Canada of the filing corporation and associated corporations for the preceding year on the lines for that purpose in the “Schedule 23 – Agreement among associated Canadian-controlled private corporations to allocate the business limit” section of Schedule 9 WORKCHART. The taxable capital employed in Canada must be the taxable capital from the last taxation year that ended in the preceding calendar year. It should be determined within the meaning assigned by subsections 181.2(1) or 181.3(1) or section 181.4 ITA, as the case may be. The amount of taxable capital employed in Canada of the filing corporation for the preceding year will be carried forward automatically when the client file is rolled forward.
For taxation years that start after 2018, a reduction in the business limit based on the adjusted aggregate investment income for taxation years ended in the previous calendar year of the corporation and its associated corporations is added to the reduction based on taxable capital in subsection 125(5.1) ITA. The corporation’s business limit will now be reduced by the greater of the taxable capital reduction and the adjusted aggregate investment income reduction.
The adjusted aggregate investment income reduction reduces a corporation’s business limit for a taxation year by five dollars for every dollar by which the corporation’s “adjusted aggregate investment income” (as defined in subsection 125(7) ITA), and that of its associated corporations, for taxation years ending in the preceding calendar year, exceeds $50,000.
Note that the passive income reduction does not apply to a cooperative corporation to which subsection 136(1) ITA applies, a credit union to which subsection 137(7) ITA applies or to an insurance corporation to which section 141.1 ITA applies.
For more information in respect of the adjusted aggregate investment income calculation, consult the Help topic for Schedule 7.
Message from the CRA concerning Schedule 23
The Canada Revenue Agency has asked us to remind our clients of the importance of entering the association code on Schedule 23, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit. Consequently, we would ask that, for each associated corporation return filed, you verify that the association code is properly entered on line 300 of Schedule 23. The CRA has indicated that, if this information is not entered, there will be a delay in the processing of the return.
Tip: For more information on the T2 Data Connection, please consult the T2 Data Connection guide, available in the Professional Centre.
See also
T2 Corporation – Income Tax Guide