Schedule 7 (aggregate investment income and small business deduction)

A buyer or seller meets Schedule 7 when a private corporation holds investments alongside its operating business. The CRA’s guide says the schedule determines aggregate investment income and foreign investment income for the refundable portion of Part I tax, and income from an active business carried on in Canada for the small business deduction.

Where it affects the business limit

The guide says the business limit of a CCPC is also reduced if the CCPC and any corporation it is associated with earn combined passive investment income above a set level. That income is calculated in Part 2 of Schedule 7 and called the adjusted aggregate investment income. The guide says to use Schedule 7 to assign all or part of a specified partnership business limit to another corporation, and to file it where another corporation has assigned all or part of its business limit to the CCPC.

What to ask

• What the seller’s Schedule 7 showed for recent years
• Whether associated corporations’ investment income was combined in Part 2
• Whether any business limit was assigned to or from the corporation

See passive investment income, the small business deduction and what tax filings to review before buying.