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I'm working on to setup a CCPC and actively trading Option/stock. Will this CCPC qualify SBD and the income to be treaded as active business income with tax rate of 12% (in Ontario, <$500K)?
I heard completely opposite opinions about this question. Is this area your expertise?
Thank you,
P.S.
Trading strategy: weekly or a couple of weeks in the money covered call / cash secured put
Active trading: around 200 trades per month
Purpose of trade: short term not long term
Can a CCPC actively trading options/stocks claim the Small Business Deduction (SBD)?
Short answer:
Yes — if the corporation is carrying on an active business and is not a Specified Investment Business (SIB), the Small Business Deduction can be claimed.
The controversy comes from how CRA classifies proprietary trading businesses.
Step 1: Is the activity a business (vs capital gains)?
CRA accepts that active securities trading can constitute a business. This is determined based on facts such as:
CRA factors for business income (ABI test)
CRA looks at the overall picture, including:
- Frequency and volume of trades
High turnover and frequent trades support a business characterization. - Intention at time of acquisition
Short-term profit from price movements (not yield or long-term appreciation) points to business income. - Holding period
Very short holding periods support trading as a business. - Degree of organization and systemization
Formal strategies, risk management rules, regular monitoring, and dedicated accounts support business activity. - Knowledge, experience, and skill
Specialized expertise and sophisticated strategies (e.g. options) support business income.
If these factors are met, profits are generally business income, not capital gains.
Step 2: Is the business a Specified Investment Business (SIB)?
This is where most confusion arises.
Under the Income Tax Act, a Specified Investment Business is still a business, but it is excluded from SBD if its principal purpose is to earn income from property.
CRA often takes the position that proprietary securities trading:
- Is a business, but
- Its principal purpose is earning income from property (using the corporation’s own capital)
If classified as an SIB, SBD is denied unless an exception applies.
Exceptions that allow SBD despite SIB rules
SBD may still be available if:
- The corporation employs more than 5 full-time employees, or
- The corporation earns income from providing services (e.g. trading or advisory services for others), not just trading its own capital
Most one-person or small proprietary trading CCPCs fail here.
How this applies to active option trading
High-frequency strategies (weekly covered calls, cash-secured puts, ~200 trades/month):
- Strongly support business income treatment
- Do not automatically qualify for SBD
- Face CRA scrutiny at the Specified Investment Business step, not the “is it a business?” step
Bottom line
- ✔ Active trading can be a business
- ✔ If it is an active business (not an SIB), SBD can be claimed
- ⚠ Many proprietary trading CCPCs are still denied SBD because CRA classifies them as Specified Investment Businesses
- ⚠ This is fact-driven and audit-sensitive
This is why professionals often give opposite answers — they’re answering different parts of the test.