A Canadian corporation earns passive investment income, such as interest and dividends. How is this income generally treated for federal income tax purposes compared to active business income for a CCPC?

Question: A Canadian corporation earns passive investment income, such as interest and dividends. How is this income generally treated for federal income tax purposes compared to active business income for a CCPC?

Answer options:

• It is subject to the same low small business tax rate. ✅ It is generally subject to a higher federal tax rate and may be refundable upon dividend payment.
• It is tax-exempt for Canadian corporations.
• It is taxed at the general corporate rate with no refundability.

Correct answer: It is generally subject to a higher federal tax rate and may be refundable upon dividend payment.

Explanation: Passive investment income for Canadian corporations (including CCPCs) is taxed at a much higher federal rate than active business income. A portion of this tax is often refundable when taxable dividends are paid to shareholders, to integrate personal and corporate tax.