How do associated corporations share the business limit on T2 Schedule 23?
For 2026, associated CCPCs share one $500,000 business limit by assigning percentages on T2 Schedule 23 that total at most 100%. Each member's line 410 is $500,000 times its percentage, prorated by days over 365 for a year under 51 weeks. With no agreement, each limit is nil until the Minister allocates it after a 30 day written notice.
How does Schedule 23 turn one $500,000 into each member's limit?
Under s.125(2), a CCPC's business limit is $500,000, but nil once it's associated with another CCPC in the year. Subsection 125(3) restores it: the associated CCPCs file an agreement in prescribed form assigning a percentage to one or more of them, and each gets $500,000 times its percentage laws-lois.justice.gc.ca. Schedule 23 is that prescribed form.
| Field | What goes in it |
|---|---|
| Line 050 | The calendar year the agreement applies to |
| Line 075 | Yes if this agreement replaces one already filed for that calendar year |
| Column 1 | Legal name of every corporation in the associated group, including those deemed associated under s.256(2) |
| Column 2 | Business number, or NR if it has none |
| Column 3 | Association code 1 to 5 |
| Column 4 | Business limit for the year before the allocation, or 0 for codes 2, 3 and 4 |
| Column 5 | Percentage for each code 1 corporation; the total can't exceed 100% |
| Column 6 | Column 4 × column 5; the total at line A can't exceed $500,000 |
Each corporation then enters its own column 6 amount on line 410 of its T2. If its tax year is shorter than 51 weeks, it first prorates that amount by the days in the year over 365 canada.ca.
The current form is T2 SCH 23 E (19), marked for 2019 and later tax years, so it's the version for 2026 returns as of October 2026 canada.ca. The tests for who counts as associated are on our associated corporations page.
Which association code goes in column 3?
Column 3 takes one of five codes, and only code 1 corporations share in the limit canada.ca.
| Code | Corporation | Column 4 |
|---|---|---|
| 1 | Associated, sharing the business limit (unless code 5 applies) | Its business limit before allocation |
| 2 | A CCPC that is the third corporation under s.256(2) and filed Schedule 28 | 0 |
| 3 | A third corporation that isn't a CCPC | 0 |
| 4 | An associated corporation that isn't a CCPC | 0 |
| 5 | An associated CCPC that code 1 doesn't cover because a third corporation filed Schedule 28 | Its limit, but no percentage in column 5 |
Don't copy codes across from Schedule 9. The two forms number different things: on Schedule 9, code 4 means related but not associated, and that corporation doesn't go on Schedule 23 at all. On Schedule 23, code 4 is a corporation that is associated but isn't a CCPC. Our Schedule 9 page walks through its own codes.
Codes 2 and 5 only come up with the third corporation rule. When a CCPC that links two otherwise unassociated corporations files Schedule 28, those two are deemed not associated with each other for the small business deduction, its own business limit is treated as zero, and it has to file a new election each year canada.ca.
Which split wastes the least limit for a holdco, an opco and a short year newco?
Holdco owns 100% of Opco and of Newco, so all three are associated. Holdco only holds investments. Opco has a December 31 year end and $450,000 of active business income for 2026. Newco was incorporated May 1, 2026, chose December 31 as its year end, and earned $120,000 of active business income in its 245 day first year. The group is under both grind thresholds.
| Option (Opco / Newco) | Opco line 410 | Newco line 410, × 245 ÷ 365 | Income taxed at 9% | Federal tax on the $570,000 |
|---|---|---|---|---|
| 100% / 0% | $500,000 | $0 | $450,000 | $58,500.00 |
| 70% / 30% | $350,000 | $100,684.93 | $450,684.93 | $58,458.90 |
| 80% / 20% | $400,000 | $67,123.29 | $467,123.29 | $57,472.60 |
| 90% / 10% | $450,000 | $33,561.64 | $483,561.64 | $56,486.30 |
The 90% / 10% split wins because two things waste limit. Any limit above a member's active business income does nothing, since the deduction is 19% of the least of lines 400, 405, 410 and 428 canada.ca. And every dollar given to Newco loses 120 of each 365 days to proration. So give the full year member exactly what it can use, then hand the rest to the short year member. Against 70% / 30%, that saves $32,876.71 × 6 points, or $1,972.60 of federal tax.
| Column 1 | Column 3 | Column 4 | Column 5 | Column 6 | Line 410 on its own T2 |
|---|---|---|---|---|---|
| Holdco | 1 | $500,000 | 0% | $0 | $0 |
| Opco | 1 | $500,000 | 90% | $450,000 | $450,000 |
| Newco | 1 | $500,000 | 10% | $50,000 | $33,561.64 |
| Line A | 100% | $500,000 |
Line 050 is 2026. The federal rates used are 9% on income eligible for the small business deduction and 15% on the rest, as on our small business deduction 2026 page.
What happens with no agreement, or with percentages over 100%?
Without a valid agreement, every member's limit stays nil under s.125(2). If the percentages add up to more than 100%, s.125(3)(b) makes the limit nil for each corporation in the group, not just the one assigned too much laws-lois.justice.gc.ca.
The CRA doesn't leave it there. If the associated CCPCs don't file the agreement within 30 days after the Minister's written notice that one is needed for an assessment, s.125(4) has the Minister allocate the limit to one or more of them, with the total capped at the $500,000 a single unassociated corporation would get laws-lois.justice.gc.ca. Your client then gets the CRA's split, not the one that best matches each member's income.
The T4012 guide says only one of the associated corporations needs to file Schedule 23 for a calendar year, and if none is on file when the CRA assesses a return for a year ending in it, the CRA will ask for it canada.ca. Each member enters its own column 6 amount on line 410, so agree the split before the first T2 in the group goes in.
Reporting the group matters on its own. The CRA says it may assess penalties for failing to report relevant relationships, and lists Schedules 9, 23 and 49 as the ones associated CCPCs claiming the small business deduction or the enhanced SR&ED credit must file canada.ca.
What if a member has two tax years ending in the same calendar year?
File an agreement for each of them. The form says an associated CCPC with more than one tax year ending in a calendar year must file an agreement for each tax year ending in that calendar year canada.ca. Under s.125(5)(a), the business limit for each later year is the lesser of the limit for the first year ending in that calendar year and the limit for the later year
laws-lois.justice.gc.ca.
The CRA's own example: Corp A changed its year end, so it has tax years ending June 30, 2025 and December 31, 2025 canada.ca.
| Tax year | Days | Allocated on that year's agreement | Limit used | Line 410 after proration |
|---|---|---|---|---|
| Ending June 30, 2025 | 181 | $100,000 | $100,000 | $49,589 |
| Ending December 31, 2025 | 184 | $90,000 | Lesser of $100,000 and $90,000 | $45,370 |
Both years are short, so each is also prorated over 365, which the CRA doesn't adjust for leap years. The cap only cuts one way: had the second agreement given Corp A $150,000, its December year would still be held to the first year's $100,000.
How does column 6 flow into the small business deduction and the balance due day?
Line 410 starts the calculation, and the grinds come next. The reduction on lines 422 and 426 is the greater of the taxable capital reduction and the passive income reduction, and line 428 is line 426 less any limit assigned to another corporation under s.125(3.2) canada.ca.
Both grinds look at the whole group. The passive income formula is D ÷ $500,000 × 5 × (E − $50,000), where D is this member's limit before the grind and E is the combined adjusted aggregate investment income of the corporation and every corporation it's associated with, for their tax years ending in the preceding calendar year laws-lois.justice.gc.ca. So in the example, Opco's grind would start from its $450,000, not from $500,000. The formulas are on our passive income grind page.
Schedule 23 also decides when the group's tax is due. An associated CCPC gets three months to pay its balance, instead of two, only if it was a CCPC all year, it claimed the small business deduction for the current or previous year, and the combined taxable income of all the associated corporations for their last tax years ending in the previous calendar year doesn't exceed their combined business limits canada.ca. The dates are on our T2 filing deadline page.
Sources
Does a holding company with no active business income go on Schedule 23?
Yes. It's associated, so list it with code 1, and you can give it 0%. Subsection 125(3) only requires a percentage for one or more of the members, so the operating companies can take the full 100% laws-lois.justice.gc.ca.
Can the group change the split after the returns are filed?
The form allows for it: line 075 asks whether the agreement is an amended one meant to replace an agreement any member already filed for that calendar year canada.ca. Each member's line 410 follows its column 6 amount, so a new split means revisiting every affected T2.
Does a corporation sold partway through the year still go on the schedule?
Yes, if it was associated at any time in its tax year. Section 256(1) associates two corporations in a taxation year if a test is met at any time in the year, so a corporation sold in March can still be a code 1 member for the whole year laws-lois.justice.gc.ca.
Is Schedule 23 the same as Schedule 49?
No. Schedule 23 splits the business limit for the small business deduction; Schedule 49 splits the expenditure limit for the 35% SR&ED credit, and only associated CCPCs with SR&ED spending file it canada.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.