2023-0967941I7 Adjusted Aggregate Investment Income

Principal Issues: See Interpretation

Author: Foggia, Christina
Section: 125(7); 125(5.1)(b), 129(4)

                                                                                April 3, 2023

Mr. Yves Thivierge                                                 Income Tax Rulings Directorate
Corporate Income Tax Legislative                     Christina Foggia, CPA, CA        
Amendments Section
Legislative Policy Directorate
Canada Revenue Agency

                                                                                 2023-096794

    Adjusted Aggregate Investment Income

This is in reply to your correspondence of March 16, 2023, wherein you requested our views on whether the Adjusted Aggregate Investment Income (“AAII”) of a corporation for a taxation year, as defined in subsection 125(7) of the Income Tax Act (“Act”), which is relevant for purposes of calculating a corporation's business limit reduction under paragraph 125(5.1)(b) of the Act (“BL Reduction”), can be a negative amount.

You have also inquired whether for purposes of the BL Reduction calculation (Variable E in paragraph 125(5.1)(b) of the Act), whether a separate AAII calculation is required for each taxation year in the situation where a corporation has multiple taxation years that ended in its preceding calendar year.

Our Comments

Aggregate Investment Income (“AII”) which is defined in subsection 129(4) of the Act, is the basis for the determination of a taxpayer’s AAII for the year and generally includes only two categories of income; the eligible portion of a corporation’s net taxable capital gains and the corporation’s income for the year from a source that is property, subject to certain exclusions, in excess of a corporation’s loss for the year from a source that is a property. Only the excess amount of a corporation’s taxable capital gains and income from a source that is property are required to be included in the AII computation for a particular taxation year. Thus, there are no circumstances in which the calculation of a taxpayer’s AII can result in a negative amount.

AAII is a modified version of the AII definition in subsection 129(4) of the Act. Therefore, once a corporation’s AII is known, it can then determine its AAII by making certain adjustments as are prescribed in paragraphs (a) to (d) of the definition of AAII in subsection 125(7) (“Prescribed Adjustments”). The Prescribed Adjustments impose further limitations on the inclusions in paragraphs (a) and (b) of the AII definition, however, they do not change the requirements of the calculation which provide that only the excess amount of a corporation’s taxable capital gains and income from a source that is property are included in the AAII computation. Thus, a taxpayer’s AAII cannot result in a negative amount.

The calculation of a taxpayer’s AAII is completed on a taxation year by taxation year basis as is stated in the preamble of the definition in subsection 125(7) of the Act. Thus, in a situation where a corporation has multiple taxation years that ended in its preceding calendar year, the AAII for each taxation year is calculated separately and then each amount (NIL if otherwise negative) is totalled for purposes of computing a corporation’s BL Reduction pursuant to paragraph 125(5.1)(b) of the Act.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Manager
Business and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch

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