How your passive income erodes the SBD
$500,000 active income · Ontario CCPC 2025 · 6.0% grind spread (federal-only)
How the timing works. The federal grind uses a year's AAII to set the following year's small-business limit. The passive income you enter sets next year's limit, so the figures below are the resulting annualimpact — not a tax on this calendar year's income.
Current AAII
$50,000
Below threshold
vs. $50K threshold
Business limit remaining
$500,000
of your $500,000
Active income at the higher rate
$0
pushed from 12.2% to 18.2%
Annual extra corporate tax
$0
next year · federal-only grind
Only the taxable half of your capital gains counts toward AAII; the non-taxable half credits your Capital Dividend Account and can later be paid out tax-free.
The SBD erosion curve
business limit remaining (gold) and the extra corporate tax it causes at your active income (navy), across AAII
● your current AAII
Projected AAII over time
5% annual growth over 10 years — when you cross each threshold
Without action, AAII crosses $50K in year 1.
Baseline vs. corporate-owned life insurance
redirecting passive income out of annually-taxed assets and into an exempt policy
Baseline
all passive income taxed annually
AAII$50,000
Business limit remaining$500,000
Active income at the higher rate$0
Extra corporate tax / year$0
With corporate-owned life insurance
$0 redirected
AAII$50,000
Business limit remaining$500,000
Active income at the higher rate$0
Extra corporate tax / year$0
- Cash-value growth compounds tax-deferred inside the exempt policy — it never adds to AAII.
- At death, the benefit funds the Capital Dividend Account, enabling tax-free capital dividends to your estate.
Assumptions & limitations
Ontario CCPC, 2025 combined federal + Ontario rates. Ontario does not parallel the federal passive-income grind, so a ground-down dollar of active income moves from 12.2% to 18.2% — a 6% spread, not 14.3%. Assumes no associated corporations sharing the $50K / $500K limits and no large-corporation taxable-capital grind; both can materially change results, and the limits are shared across an associated group. The grind uses a year's AAII to set the followingyear's limit; the figures here show that annual, next-year impact rather than a same-year tax. The life-insurance scenario models only the AAII exclusion of cash-value growth and the qualitative CDA / tax-deferral benefits; it does not project policy cash value, premiums, cost of insurance, or rate of return. Suitability of any insurance product must be assessed individually by a licensed insurance and investment advisor.
This tool is for illustration purposes only and does not constitute financial advice.
See the terms of use for full disclaimers. Rates must be re-verified annually.