Passive Income SBD Grind Calculator for Ontario CCPCs
Investment income above $50,000 grinds your small business limit by $5 for every $1. But Ontario never adopted that rule, so the cost in Ontario is far smaller than almost every calculator online will tell you. Work out the real number.
extra tax a year
—
—
—
—
How the Grind Is Calculated
| Step | Basis | Amount |
|---|
Federal and Ontario Treated Separately
| Item | Federal | Ontario |
|---|
The Rate That Actually Applies
| Income | Federal | Ontario | Combined |
|---|
What the Grind Costs You
| Position | Basis | Corporate Tax |
|---|
Points That Decide This
What to Do Next
—
Disclaimer: Subsection 125(5.1) reduces the $500,000 business limit by $5 for every $1 of adjusted aggregate investment income above $50,000 in the prior taxation year, across the associated group, eliminating the limit entirely at $150,000. Ontario does not parallel this measure, so the Ontario small business limit is unaffected by passive income. Ontario does parallel the taxable capital reduction, which phases the limit out between $10,000,000 and $50,000,000 of taxable capital employed in Canada, and the federal reduction is the greater of the two rather than the sum. Rates used are 9% federal small business, 15% federal general, 11.5% Ontario general, and an Ontario small business rate of 2.2% from 1 July 2026, shown as a day-weighted 2.696% for calendar 2026 corporations. Adjusted aggregate investment income excludes dividends from connected corporations and income from an active business. This page is general information, not tax advice.
Ontario Never Adopted the Grind
The federal rule is well known. Adjusted aggregate investment income above $50,000 reduces the $500,000 business limit by $5 for every $1, wiping it out entirely at $150,000.
What almost every calculator and article gets wrong is the consequence in Ontario. Ontario chose not to parallel the measure, so the Ontario small business limit is not touched by passive income at all. Only the federal portion is lost.
| Income | Federal | Ontario | Combined |
|---|---|---|---|
| Within the small business limit | 9% | 2.2% | 11.2% |
| Ground out by passive income | 15% | 2.2%, unchanged | 17.2% |
| Above the $500,000 limit entirely | 15% | 11.5% | 26.5% |
The grind costs an Ontario CCPC 6 percentage points, not 15.3. Ground income is taxed at 17.2%, not 26.5%, because the Ontario small business rate survives untouched. On a fully ground $500,000 limit that is $30,000 a year rather than the $76,500 most sources imply. Still worth managing, but nowhere near the crisis it is usually presented as.
Ontario Also Cut the Rate
Ontario reduced its small business rate from 3.2% to 2.2% effective 1 July 2026, so the combined small business rate is now 11.2% rather than the 12.2% you will still see quoted almost everywhere.
Corporations with a year straddling that date use a day-weighted rate. A calendar-year corporation pays 2.696% provincially for 2026, giving a combined 11.696%, and the full 11.2% applies from 2027.
What Counts as Adjusted Aggregate Investment Income
| Included | Excluded |
|---|---|
| Interest on cash, GICs and bonds | Dividends from connected corporations |
| The taxable half of capital gains | Income from an active business |
| Net rental income | Capital gains on active business assets used in the business |
| Portfolio dividends from unconnected corporations | Capital gains on shares of a connected active business corporation |
| Royalties on passive property | The non-taxable half of capital gains |
Two exclusions matter more than the rest. Dividends moving up from an operating company to a holding company are not investment income for this purpose, so a properly structured group does not grind itself simply by sweeping surplus upward. And a capital gain on selling the operating business itself is generally excluded, which protects the year of a sale.
It Is the Prior Year That Counts
The grind applies to the current year’s business limit based on the previous year’s investment income. That makes it manageable in a way most rules are not, because you know a year in advance whether the limit is coming down.
It also means a one-off gain has a delayed effect. Selling a portfolio position in December affects next year’s limit, not this year’s, and a large realised gain in one year can be planned around before it bites.
A Separate Holding Company Does Not Help
The whole associated group is aggregated. Moving the investments into a holdco does not reduce the grind, because the investment income of every associated corporation counts toward the same $50,000 threshold and the group shares one $500,000 limit. Holdcos are worth having for creditor protection and succession. They do nothing at all for this.
The Taxable Capital Grind Runs Alongside
A second reduction phases the business limit out between $10,000,000 and $50,000,000 of taxable capital employed in Canada across the associated group. Ontario does parallel this one, so it reduces both the federal and the Ontario limits.
Where both apply, the federal reduction is the greater of the two rather than the sum. A corporation with $30,000,000 of taxable capital loses $250,000 of limit federally and provincially, which costs considerably more than the passive grind because the Ontario side goes with it.
What Actually Reduces the Number
- Corporate class and total return funds that defer distributions, so income is realised when you choose rather than annually.
- Realising gains deliberately, spreading them across years rather than bunching them.
- Exempt life insurance, where the growth is not investment income at all.
- Paying out surplus as dividends and investing personally or in a family trust, though that accelerates personal tax.
- An individual pension plan, which moves investment growth outside the corporation entirely.
- Timing the year of sale, since a large gain affects the following year’s limit.
Sometimes the Right Answer Is to Do Nothing
At a 6 point cost, a fully ground limit costs $30,000 a year in Ontario. If the investment portfolio generating that passive income is earning more than $30,000 of additional return by staying invested where it is, restructuring around the grind destroys value rather than creating it.
That calculation is worth doing before paying for a solution to it. In Alberta or British Columbia, where the provincial grind does parallel, the answer is often different.
What This Calculator Does Not Cover
- Provinces other than Ontario, most of which do parallel the federal grind
- The allocation of the business limit between associated corporations on Schedule 23
- Foreign accrual property income and its interaction with the calculation
- Refundable tax and the dividend refund, which run alongside this
- Specified corporate income and the separate limit reduction for services to associated corporations
- The year of a business sale, where several exclusions can apply at once
Know the real number before restructuring around it. In Ontario the grind is a 6 point cost, not the 15 point cost usually quoted, and that changes what is worth doing about it. Our holding company planning service covers the group structure, the limit allocation and the investment income position.
Frequently Asked Questions
Common questions from Ontario CCPC owners with corporate investments.
Related Calculators and Guides
More tools for CCPCs with corporate investments.
Know the Real Number Before You Restructure Around It
Send us last year’s financial statements and the investment income detail. We will calculate the actual grind on your group, allocate the limit properly across associated corporations, and tell you plainly whether it is worth doing anything about.