Doctors & Dentists: Track Investment Income to Avoid Higher Taxes

Understanding Aggregate Investment Income and Its Impact on the Small Business Deduction for Medical Professionals

As a medical professional operating through a Canadian-Controlled Private Corporation (CCPC), it is crucial to understand how your corporation’s investment income can impact your small business deduction (SBD). Many doctors and dentists invest surplus corporate funds in passive investments, unaware that this can lead to a gradual erosion of their SBD if not carefully tracked and managed.

What is Aggregate Investment Income (AII)?

Aggregate Investment Income (AII) consists of passive income earned within your corporation, including:

• Interest

• Dividends (other than eligible dividends)

• Rental income (unless it qualifies as active business income)

• Net capital gains (50% of capital gains are included in AII)

The issue arises because, under tax rules introduced in 2018, a CCPC’s access to the small business limit begins to grind down once its AII exceeds $50,000 in a taxation year. For every dollar of AII above this threshold, the small business limit is reduced by $5. Once AII reaches $150,000, the CCPC’s access to the small business deduction is entirely eliminated, meaning that all active business income is taxed at the general corporate rate instead of the lower small business tax rate.

Why Should Doctors and Dentists Care?

The small business deduction allows CCPCs to benefit from a reduced tax rate on the first $500,000 of active business income. In British Columbia, this means a significant difference in tax rates:

• Small business rate: 11% (as of 2025)

• General corporate rate: 27%

Losing the SBD means a significant increase in corporate taxes, reducing the amount of after-tax income available for reinvestment, expansion, or personal withdrawals.

Tracking Investment Income to Avoid Unpleasant Surprises

To avoid inadvertently losing access to the small business deduction, medical professionals should actively track their corporation’s investment income throughout the year. This can be done by:

• Reviewing investment statements regularly to assess interest, dividends, and realized capital gains

• Implementing an investment strategy that limits passive income (e.g., focusing on growth stocks rather than dividend-paying stocks or fixed-income investments)

• Planning dispositions of capital assets to spread capital gains over multiple years

Capital Dividend Account (CDA) Considerations

Another important aspect of investment income tracking is the Capital Dividend Account (CDA). The CDA allows CCPCs to distribute tax-free capital dividends to shareholders. Since only 50% of capital gains are taxable, the remaining 50% is credited to the CDA and can be distributed tax-free. However, if not properly tracked, this opportunity can be missed.

Medical professionals should maintain proper records to:

• Ensure that all capital gains and losses are correctly reported

• Track the CDA balance to take advantage of tax-free distributions

• Plan withdrawals strategically to maximize after-tax wealth

Final Thoughts

For doctors and dentists who rely on their professional corporations to accumulate wealth, understanding AII and its impact on the small business deduction is critical. Careful planning and tracking of investment income can help maintain tax efficiency and optimize long-term wealth accumulation. If you’re unsure about your corporation’s exposure to these tax rules, consulting with a CPA experienced in professional corporations can help you develop a strategy that minimizes tax liabilities while maximizing financial growth.