Income Tax Act subsection 125(7)
A Canadian Controlled Private Corporation’s first $500,000 of active business income is taxed at a much lower rate. This is known as the small business deduction.
Active business income is essentially exactly what is sounds like. Active income is typically anything other than investment income, rental income, leasing income, income from a specified investment business or a personal services business. These types of income are usually passive income, and passive income does not qualify for the small business deduction.
Rental and leasing income may qualify as active income in certain situations.
IT-73R6 The Small Business Deduction