CCPC Passive Income Grind Calculator Canada

What the passive income grind calculator does

The calculator shows how much of a corporation’s small business deduction is lost to investment income, how much active business income moves from the small business rate to the general rate as a result, and what that costs in corporate tax for the year. Enter active business income, adjusted aggregate investment income, the two provincial corporate rates and any allocated share of the business limit, and the tool reports the reduced limit, the split of active income between the two rates, the tax with and without the grind, and the difference.

That is the number you need when deciding whether to hold a portfolio inside the corporation, realize a gain this year or next, or move surplus cash out.

The rule in brief

A Canadian-controlled private corporation pays a low federal rate on active business income up to the business limit and the general federal rate above it. For taxation years starting after 2018, the limit is reduced by a fixed multiple of every dollar of AAII above a threshold, reaching nil at an upper threshold. The reduction uses the associated group’s prior-year investment income, and where the taxable capital reduction also applies, the larger of the two counts.

The base business limit, both thresholds, the reduction per dollar and both federal corporate rates are stored parameters. Provincial rates vary, so you enter the provincial small business and general rates yourself.

A worked example

A corporation earns $500,000 of active income and had $75,000 of AAII last year, using Ontario’s 3.2% and 11.5% provincial rates. AAII is $25,000 above the $50,000 threshold, which takes $125,000 off the $500,000 business limit, leaving $375,000. So $125,000 of active income is taxed at the general rate instead of the small business rate. The combined rates are 12.2% and 26.5%, a gap of 14.3 points, so the grind costs $17,875: total corporate tax is $78,875 against $61,000 without it. Each further dollar of AAII costs about 71 cents until the limit reaches nil, which here would take another $75,000 of AAII.

The cost is a repricing, not a new tax

The most common mistake is to treat the grind as an extra charge on investment income. Investment income is taxed the same way with or without it, under refundable tax rules that return part of the tax when dividends are paid. The grind changes the rate on active business income.

The cost depends on three things: how much business limit is taken away; how much active income falls into the gap that opens, which is nothing if active income was already below the reduced limit; and the gap between the combined small business and general rates, which depends on the province. Multiply the second by the third for the annual cost. The calculator shows the repriced income on its own line so you can see whether the grind is expensive or only theoretical for your numbers.

When the grind costs nothing

A corporation with active income well below the reduced business limit loses limit it was never going to use: the reduction line shows a large number and the tax cost line shows zero. That is the correct answer, and it is why a small operating company with a large portfolio can often ignore the rule.

Once the limit has been ground to nil, further investment income changes nothing, and the marginal cost drops to zero. Worth knowing before restructuring a portfolio that has already pushed the corporation past the upper threshold.

Planning around the lag

Because the reduction depends on last year’s investment income, you see the effect of a decision a year ahead. Realize a large gain one year and the limit falls the next, then recovers if the portfolio returns to its normal yield.

Common responses are to spread realizations across years, hold growth assets that produce little annual income, use an individual pension plan or corporate-owned life insurance where the facts support it, or pay out enough salary or dividends that surplus never builds up. Each has consequences beyond the grind, so treat the figure here as input to a conversation with an accountant.

Associated corporations and the allocated share

The business limit is shared across an associated group, and the reduction is calculated on the group’s combined investment income before the share is allocated. The allocated share input applies that split, so a corporation entitled to half the group limit sees both the base limit and the reduction halved. Getting the association analysis wrong costs far more than getting the grind arithmetic wrong, and a calculator cannot decide it for you.

Reading the result

The main figure is the extra tax caused by the grind: corporate tax at the reduced limit less the tax the same corporation would pay with no investment income. The limit and reduction lines show the mechanics, the repriced income line shows how much active income moved between rates, the marginal line shows the cost of one more dollar of AAII, and the headroom lines show how far you are from the start and end of the grind.

All figures are an estimate from the published business limit, thresholds, reduction multiple and federal corporate rates, plus the provincial rates you entered. They ignore the taxable capital reduction, refundable tax on investment income, the general rate income pool and rules that depend on the facts of a particular associated group. This is not tax advice; confirm the position with your accountant before acting on it.

About This Tool: Passive Income Grind

Passive income grind: use this tool to get an instant, accurate estimate. The figures follow official CRA guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.