CRA indicates that 2 related but not associated CCPCs do not have their SBD ground under s. 125(1)(a)(i)(B) if they have no business dealings with each other

CRA indicated that where two CCPCs, wholly-owned by Mr. or Mrs. X, did not provide services or property, directly or indirectly, in any manner whatever, to the other, then on that basis neither CCPC would be considered to have earned income described in s. (a)(i) of the definition of “specified corporate income” in s. 125(7), i.e., s. 125(1)(a)(i)(B) would not carve out any such income from that income eligible for the small business deduction. Furthermore, as the corporations were not associated with the other, they would not be required to aggregate their taxable capital employed in Canada for the purposes of the formula reduction in their business limit pursuant to s. 125(5.1)(a).

Neal Armstrong. Summaries of 26 January 2023 External T.I. 2021-0887661E5 under s. 125(7) – specified corporate income - (a)(i) and s. 125(5.1)(a).