How do I fill out T2 Schedule 7 for aggregate investment income and the small business deduction?
The 2025 version of T2 Schedule 7, used for 2022 and later tax years, computes a CCPC's aggregate investment income (Part 1, line 092 to T2 line 440), adjusted aggregate investment income (Part 2, line 745, which grinds next year's $500,000 business limit through line 417) and income eligible for the small business deduction (Part 6, to line 400).
Where does each part of Schedule 7 land on the T2?
The current form is T2 SCH 7 E (25), titled Aggregate Investment Income and Income Eligible for the Small Business Deduction, for 2022 and later tax years canada.ca. The CRA lists it as the 2025 version on the form page
canada.ca. It has seven parts, and only three of them feed the T2 directly.
| Part | What it computes | Total line | Where it goes |
|---|---|---|---|
| 1 | Aggregate investment income (world source) | 092 | T2 line 440, refundable portion of Part I tax |
| 2 | Adjusted aggregate investment income | 745 | Added to associated corporations' AAII on T2 line 417 for the tax year ending in the following calendar year |
| 3 | Foreign investment income | 079 | T2 line 445 |
| 4 | Specified partnership income | 400 (Schedule 7) | Amount R in Part 5 |
| 5 | Partnership income not eligible for the SBD | 450 (Schedule 7) | Amount Z in Part 6 |
| 6 | Income eligible for the small business deduction | Amount DD | T2 line 400 (enter 0 if negative) |
| 7 | Specified corporate income and assignments under s.125(3.2) | 615 and 625 | Amounts AA and CC in Part 6 |
Watch the clash in numbering. Schedule 7 has its own lines 400, 440 and 450 inside Parts 4 and 5, and they have nothing to do with T2 lines 400, 440 and 450 canada.ca.
A corporation that was a CCPC throughout the year completes the whole schedule. A substantive CCPC at any time in the year uses it only for aggregate and foreign investment income (Parts 1 and 3), because the AAII, partnership and SBD parts are only for a corporation that was a CCPC throughout the year canada.ca.
Part 1 and Part 2 start from the same income but give different totals
Part 1 follows the s.129(4) definition of aggregate investment income laws-lois.justice.gc.ca. Part 2 follows the s.125(7) definition of adjusted aggregate investment income, which starts from that number and rewrites four pieces of it
laws-lois.justice.gc.ca. The form shows the differences line by line
canada.ca.
| Item | Part 1 (AII) | Part 2 (AAII) |
|---|---|---|
| Taxable capital gains, net of allowable capital losses | Lines 002 and 012, all gains | Lines 705 and 710, gains and losses on active assets left out |
| Net capital losses of prior years claimed on T2 line 332 | Deducted on line 022 | Not deducted |
| Interest, rent and other property income | Line 032 | Line 715 |
| Portfolio dividends from public or unconnected companies | Removed on line 062 with all deductible dividends | Stay in; only connected dividends come out on line 730 |
| Dividends from connected corporations | Removed on line 062 | Removed on line 730 |
| Life insurance policy amounts in income | No separate line | Included under note 14, even if Part 1 left them out |
| Amount deducted under s.91(4) | No line | Added back on line 741 |
| Total | Line 092, to T2 line 440 | Line 745, to next year's T2 line 417 |
An active asset is property used principally in an active business carried on primarily in Canada by the corporation or a related CCPC, plus certain shares of connected corporations and certain partnership interests canada.ca. Sell an old operating building and the taxable gain is AII in Part 1 but not AAII in Part 2.
Property income in both parts includes income from a specified investment business carried on in Canada. It excludes income from property incident to or used principally in your client's active business laws-lois.justice.gc.ca. Interest on trade receivables, for example, stays active business income.
One CCPC with $57,000 of AII has $63,000 of AAII
Your client is a CCPC with a December 31, 2025 year end and no associated corporations. In 2025 it earned $25,000 of interest on surplus cash, $8,000 of dividends from public companies and a $40,000 dividend from a connected subsidiary. It had a $30,000 taxable capital gain on an ETF and a $12,000 taxable capital gain on the sale of a warehouse it used in its business, and it claimed $10,000 of net capital losses from prior years on T2 line 332.
| Line | Part 1 | Amount | Line | Part 2 | Amount |
|---|---|---|---|---|---|
| 002 | Taxable capital gains | $42,000 | 705 | Taxable capital gains, active asset out | $30,000 |
| 022 | Prior year net capital losses | ($10,000) | 710 | Allowable capital losses | $0 |
| B | Net gains | $32,000 | F | Net gains | $30,000 |
| 032 | Property income ($25,000 + $8,000 + $40,000) | $73,000 | 715 | Property income | $73,000 |
| 062 | Deductible dividends ($8,000 + $40,000) | ($48,000) | 730 | Connected dividends only | ($40,000) |
| D | Net property income | $25,000 | H | Net property income | $33,000 |
| 092 | Aggregate investment income | $57,000 | 745 | Adjusted aggregate investment income | $63,000 |
Line 092 goes to T2 line 440 for 2025. The first limb of the non eligible RDTOH addition is 30 2/3% of it, or $17,480, before the caps for taxable income and Part I tax laws-lois.justice.gc.ca. The mechanics are on RDTOH explained.
Line 745 doesn't touch 2025 at all. It goes on T2 line 417 for the tax year ending in 2026 canada.ca. The reduction under s.125(5.1)(b) is D/$500,000 × 5(E − $50,000)
laws-lois.justice.gc.ca, so 5 × ($63,000 − $50,000) = $65,000, and the 2026 business limit is $435,000 unless the taxable capital grind is larger. The full table of reductions is on passive income SBD grind.
Notice that AAII came out higher than AII, even though the warehouse gain dropped out. The public company dividends and the ignored loss carryforward outweighed it. Copying line 092 onto line 417 would have understated the grind by $30,000 of business limit.
How does Part 6 get to the active business income on line 400?
Part 6 starts from net income for tax purposes and strips out everything that isn't active business income earned in Canada canada.ca.
| Step | Amount on Part 6 |
|---|---|
| Start | Net income from T2 line 300 (S), plus ABIL from Schedule 1 line 406 (T) |
| Subtract | Foreign business income (line 500), taxable capital gains from Schedule 1 line 113 (V), net property income (W), personal services business and other income (line 520) |
| Subtract | Partnership income not eligible from Part 5 (Z), income allocated under s.96(1.1) (line 530), income in clause 125(1)(a)(i)(C) (line 540), income in clause 125(1)(a)(i)(B) from Part 7 (AA) |
| Add back | Specified corporate income from Part 7 (CC) |
| Result | Amount DD, to T2 line 400 |
On the T2, the deduction is then 19% of the least of line 400, taxable income on line 405, the business limit on line 410 and the reduced limit after assignments on line 428 canada.ca. The rates and limits are on small business deduction 2026.
Part 7 is where specified corporate income is handled. Income from selling services or property to a private corporation in which your client, a shareholder or a non arm's length person holds an interest comes out at AA. It only returns at CC to the extent that the customer CCPC assigns business limit under s.125(3.2) laws-lois.justice.gc.ca. The amount assigned can't exceed the income from services or property provided directly to that CCPC, and specified farming or fishing income isn't included
canada.ca.
What do partnership members fill in on Parts 4 and 5?
A corporation that is a member or designated member of a partnership lists each partnership in Table 1 of Part 4. Its share of the partnership's active business income is eligible only up to a prorated business limit: (its share ÷ total partnership active income) × $500,000 × (days in the partnership's fiscal period ÷ 365) canada.ca.
The days column caps at 365 and isn't adjusted for a leap year. A partnership that sells to a private corporation your client or a non arm's length person has an interest in gets a 0 in column M1 unless all or substantially all of its active income comes from arm's length customers canada.ca.
Tables 2 and 3 record assignments of specified partnership business limit to a designated member under s.125(8). A member that is an individual, a trust or a corporation that isn't a CCPC completes only part of Table 1 and Table 3 to make that assignment, and individuals and trusts can attach those pages to their own returns canada.ca.
Sources
Does a net capital loss carryforward reduce the numbers on Schedule 7?
It reduces aggregate investment income in Part 1 but not adjusted aggregate investment income in Part 2. Line 022 deducts the net capital losses claimed on T2 line 332, and Part 2 has no matching line canada.ca. For the carryforward rules, see net capital loss carryover.
Which year does line 745 affect?
The following one. You add line 745 to the AAII of every associated corporation and enter the total on T2 line 417 for the tax year that ends in the next calendar year canada.ca. The grind uses AAII for tax years ending in the preceding calendar year
laws-lois.justice.gc.ca.
What does Part 3 add if the corporation has no foreign income?
Nothing; line 079 and T2 line 445 stay at 0. When there is foreign income, it matters because the 30 2/3% RDTOH addition is reduced where the s.126(1) foreign tax credit exceeds 8% of foreign investment income laws-lois.justice.gc.ca.
Where do Schedule 7 amounts go on the refundable tax lines?
Line 092 goes to T2 line 440 and line 079 to T2 line 445, and those two feed the refundable portion of Part I tax on line 450. For years starting after 2018, line 450 carries to amount H in the RDTOH area on page 7 of the T2 canada.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.