Schedule 7. Aggregate Investment Income
Schedule 7 (T2SCH7) calculates aggregate investment income, adjusted aggregate investment income (AAII), and income eligible for the small business deduction, driving the $50K–$150K passive income grind.
Definition
Schedule 7 (T2SCH7), "Aggregate Investment Income and Income Eligible for the Small Business Deduction," is required for every that earns investment income or claims the . It performs two linked calculations: (1) aggregate investment income (AII), which drives refundable Part I tax and the non-eligible RDTOH addition, and (2) adjusted aggregate investment income (AAII), which reduces the SBD business limit under s.125(5.1).
AAII was introduced in 2019 to discourage passive-asset accumulation inside active-business CCPCs. For 2026 tax years, the SBD business limit is ground down $5 for every $1 of AAII above $50,000, reaching zero at $150,000 of AAII on an associated-group basis.
Key rules
Aggregate investment income (AII) under s.129(4):
Dividends from taxable Canadian corporations are excluded from AII (they are handled under and Part IV).
Adjusted aggregate investment income (AAII) under s.125(7) starts from AII and adds back net capital losses deducted, removes taxable capital gains on active-use property, and removes certain incidental property income.
SBD grind:
The grind is applied on an associated-group basis (see ). It is separate from, and in addition to, the taxable-capital grind under s.125(5.1)(a).
Example
Apex Holdings Ltd. is a standalone CCPC with $80,000 of interest income, $30,000 of taxable capital gains (non-active), and no associated corporations.
Common mistakes
Treating dividends from taxable Canadian corporations as AAII. They are excluded. Misclassifying dividends as AAII will overstate the grind and understate the SBD.
- Forgetting to aggregate AAII across . A holdco with $80K interest can ruin a related opco's SBD.
- Classifying rental income from a property with fewer than 6 full-time employees as active. Rental income is typically property income unless the corporation is a "specified investment business" exception.
- Not netting capital losses correctly. Only current-year and prior-year net capital losses enter the AII formula; net capital losses of the year reduce AII, but net capital losses deducted from other years are added back when computing AAII.
- Confusing the AAII grind with the taxable-capital grind (s.125(5.1)(a)). Both apply, but they are independent and the reductions stack.
Related concepts
Authority
- CRA Form T2SCH7
- Income Tax Act s.125(5.1)
- Income Tax Act s.129(4)
- Income Tax Act s.125(7)
- CRA Guide T4012
See also
Related entries
Small Business Deduction
The Small Business Deduction reduces federal corporate tax on the first $500,000 of active business income earned by a CCPC, dropping the federal rate from 15% to 9%.
Refundable Dividend Tax On Hand (RDTOH)
RDTOH is a refundable tax pool tracked by private corporations that returns a portion of federal tax on investment income when taxable dividends are paid to shareholders, split since 2019 into ERDTOH and NERDTOH.
CCPC Status
A Canadian-Controlled Private Corporation is a private corporation resident in Canada that is not controlled by non-residents or public corporations, and CCPC status unlocks the small business deduction, refundable tax mechanics, and the capital gains exemption.
Associated Corporations Rule
Associated corporations under ITA s.256 must share a single $500,000 Small Business Deduction limit and combine their passive income and taxable capital for the SBD grind tests.
This entry is for general reference. It does not constitute professional tax advice. Consult a qualified Canadian accountant for your specific situation.