Entrepreneurship

Why the Canadian Government Penalizes Passive Income in Corporations

Essential Insights for Canadian Entrepreneurs

Over the past 14 years, I’ve operated a consulting corporation in Canada, primarily earning from active business activities.

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Last year, however, marked a significant shift.

For the first time, my paired holding corporation, established to manage investment assets, realized considerable capital gains. This experience opened my eyes to the nuances of how the Canadian government, through the Canada Revenue Agency (CRA), manages passive income within corporations, applying higher tax rates that significantly, impacted my company’s financial outcomes. This triggered my curiosity to look into the corporate tax policy and here are a few insights that I found.

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Key Insights into Tax Policy:

1. Fairness in Taxation:

The government ensures equity in the tax system by imposing higher taxes on passive income within corporations compared to personal investments. This measure aims to discourage…