CRA illustrates the effective date of the passive income rules for non-calendar year associated corporations
New s. 125(5.1)(b), which eliminates the business limit of a Canadian-controlled private corporation if it or associated corporations had significant passive income (a.k.a. “aggregate investment income”) in their taxation years ending in the preceding calendar year, is stated to apply to taxation years that begin after 2018.
CRA provided a further example at the Annual CTF Conference (to that in 2018-0771871E5) of the operation of the effective date. Holdco and Opco are associated and both have 12-month taxation years ending on 30 June 2019 and 2020. Holdco has investment income of $150,000 per year. CRA stated:
Opco would be first subject to the passive income reduction in its first taxation year beginning after 2018 (that is, Opco’s taxation year ending June 30, 2020). For its taxation year ending June 30, 2020, Opco would include the total of all amounts each of which is the adjusted aggregate investment income of Opco (for taxation year ending June 30, 2019) and Holdco (include the $150,000 of investment income for the taxation year ending June 30, 2019) that ended in the preceding calendar year (calendar year 2019).
Neal Armstrong. Summary of 27 November 2018 CTF Roundtable Q. 16, 2018-0780031C6 under s. 125(5.1)(b).