Aggregate investment income

What goes into the calculation

The CRA builds AII from two pieces. The first is the eligible portion of taxable capital gains for the year that exceeds allowable capital losses and any net capital losses from earlier years applied in the year. The second is income from property, including income from a specified investment business carried on in Canada. Property losses for the year are then deducted.

Some amounts are removed before you reach the total, including exempt income, AgriInvest receipts, deductible taxable dividends (after related expenses) and certain business income from a trust that the Income Tax Act treats as property income. The result is a world-source figure, so foreign interest or rent counts as well. A gain also counts only if it can be attributed to a period when a CCPC, or one of a few other corporation types such as a mortgage investment corporation, held the property.

What the figure is used for

AII is closely tied to an additional tax of 10 2/3% that applies to the investment income of a corporation that is a CCPC throughout the year, or in some cases a substantive CCPC. That tax is refundable. The refundable part of Part I tax is added to the non-eligible refundable dividend tax on hand account, and it can come back to the corporation when it pays non-eligible taxable dividends. The pool is explained in the entry on refundable dividend tax on hand.

AII appears on Schedule 7 and is carried to the refundable Part I tax area of the T2 return. A related version, adjusted aggregate investment income, is calculated in a separate part of the same schedule and is the figure that can shrink the small business limit. The two are not always identical, so check which one a conversation refers to.

An illustrative example

Suppose a corporation earns $30,000 of net interest and rent from money left in the company, plus a $20,000 net taxable capital gain on a marketable security. Its AII would be about $50,000. As a rough sense of scale, 10 2/3% of $50,000 is about $5,333 of additional refundable tax. The actual calculation has further steps and limits, so treat this only as an illustration.

What to discuss with your accountant

Bring statements for every investment account the corporation holds, rental records, details of property sold during the year and last year’s Schedule 7. Ask how much investment income the company is likely to earn, whether it is near the level that affects the small business limit, and whether leaving surplus cash in the corporation is still the right plan. Related corporations matter too, because passive income in one company can affect the limit of the group.