A Company qualifies as an SBC, Small Business Company, if at least 90% of its assets are used for active business purposes carried on primarily in Canada.

A CCPC, Canadian Controlled Private Company, holding only shares or debts of other companies may qualify, subject to those other companies are also being SBCs.

If corporations reinvest all their profits back into the business, meeting the “Asset use test” does not pose a problem.

If the corporations invest surplus funds in investments not required for their business purposes, and if the fair market value of these investments exceeds 10% of the fair market value of all assets, the corporation will not qualify as an SBC.

To ensure your corporation continues to qualify as an SBC you should consider reinvesting any excess funds in business assets, or remove them from your corporation, through payment of dividends, salary or repayment of shareholder loans.

The word “small” in the definition of a “small business company” is interesting, as there are no size restrictions for qualifying as an SBC.