What is the Small Business Tax Rate in Canada? (2024)

What is the Small Business Tax Rate in Canada? (1)In Canada, the general corporate tax rate is 15%, after the federal tax abatement of 10% and the general tax reduction of 13%. However, small businesses have a reduced federal tax rate of 9%.

Each province and territory also has their own corporate and small business tax rates. In Ontario, the general corporate tax rate is 11.5%. The small business tax rate is 3.2%. This means that the combined federal and provincial taxes paid on active business income is 26.5% for corporations in general, and 12.2% for small businesses.

This is a substantial tax saving.

But what qualifies a business as a small business?

Small businesses are Canadian-controlled private corporations (CCPCs) that qualify for the small business deduction (SBD).

The small business deduction provides corporations with a reduced tax rate on up to $500,000 of active business income. Federally, this can save businesses up to $30,000 in taxes every year federally. Businesses would also have reduced provincial taxes as well.

This $500,000 is claimed by a single corporation or a group of CCPC that are associated for income tax purposes.

There are, however, limitations on who can claim the small business deduction.

Firstly, the SBD will be gradually reduced for a CCPC (or group of CCPCs) when taxable capital exceeds $10 million. Once a CCPC has $15 million in taxable capital, the SBD is eliminated.

However, the 2022 budget proposed to change the upper limit of the reduction window to $50 million in taxable capital. This would allow more CCPCs to be eligible for the reduced small business tax rate. The proposed change will be available to CCPCs whose tax year starts on or after April 7, 2022. If your business has a calendar year end, the change will be effective in the 2023 tax year.

Under the current SBD program, the SBD reduces by $100,000 for every $1 million of taxable income, zeroing out at $15 million in taxable capital. Under the proposed changes, the reduction amount would be $12,500 for every $1 million of taxable capital, zeroing out at $50 million.

In addition to the taxable capital restrictions, there’s an additional restriction to the SBD amount when a CCPC (or group of associated CCPCs) has investment income exceeding $50,000 in a given taxation year. In these situations, the SBD is slowly reduced and is eliminated once investment income exceeds $150,000.

If you are interested in learning more about the small business tax rate, the small business deduction or how changes to the SBD will affect you, contact our team of chartered professional accountants today. We can help you determine whether you are eligible to access additional savings and identify other tax saving opportunities.


What is the Small Business Tax Rate in Canada? (2)

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

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Topics: Corporate

What is the Small Business Tax Rate in Canada? (3)

Written by Koroll & Company

What is the Small Business Tax Rate in Canada? (2024)

FAQs

What is the Small Business Tax Rate in Canada? ›

In 2017 the federal government implemented the lower rate of tax – the small business tax rate, also known as the Small Business Deduction (SBD), to 10.5% and again lowered it in the two following years, so it now sits at just 9%.

What is the tax rate for small business in Canada? ›

The CCPC small business rate is set at 9%. This is lower than the general corporate federal tax rate, which starts at 38%. However, after the 10% federal tax abatement and 13% general tax reduction, the general corporate tax rate is 15%. It's important to remember that corporate tax rates are subject to change yearly.

What is the business tax rate in Canada compared to the US? ›

In the OECD, Canada has the 12th-highest combined business income tax rate, higher than the United States (25.8 per cent), the United Kingdom (25.0 per cent) and the OECD average (23.6 per cent).

What is the small business tax break in Canada? ›

The small business deduction is a reduction in corporate taxes for Canadian controlled private corporations, or CCPCs. The reduced rate of tax is available on active business income up to the corporation's business limit for the year.

What is the tax rate for small business passive income in Canada? ›

Passive income has a tax rate close to 50%. With active income, the first $500,000 (earned by Canadian Controlled Private Corporations) has a lower tax rate of 9-12% (varying by province) because it qualifies for the small business deduction. Any active income above $500,000 is taxed at 25-27%.

What's considered a small business in Canada? ›

SMEs in Canada are defined by their unique employment footprint in the economy: Micro-businesses: Micro-businesses employ between 1 and 4 people. Small businesses: Small businesses in Canada are those with 5 to 99 employees. Medium-sized businesses: Medium-sized businesses employ between 100 and 499 people.

How much do most small businesses pay in taxes? ›

The average tax rate for small businesses is around 20%, but this figure can fluctuate notably depending on your state, business structure, income, expenses, and deductions. Let's break down how each of these factors can impact small business tax calculations.

What is the small business exemption in Canada? ›

A significant bump in the Lifetime Capital Gains Exemption (LCGE) to $1.25 million: The $1 million LCGE for sales of small business shares or assets for fishers and farmers will rise to $1.25 million as of June 25, 2024. It will be indexed to inflation starting in 2026.

How much can a small business make before paying GST in Canada? ›

Do I have to register for the GST/HST? Generally, if you provide taxable property and services in Canada and your total taxable revenues exceed $30,000 in any single calendar quarter or in four consecutive calendar quarters, you will have to register for the GST/HST.

How is small business deduction calculated in Canada? ›

SBD is equal to SBD rate of (19%) for the taxation year multiplied by lessor of: active business income of the corporation in Canada (excluding certain income and exceeding certain losses) – ITA 125(1)(a)(i)

What is the small business income tax deduction? ›

The QBI deduction is for you if you're a small-business owner, or self-employed, allowing you to deduct up to 20% of your QBI from your taxes. This includes people who have “pass-through” income, which is business income that you report on a personal tax return.

What is the income tax rate in Canada? ›

The amount of tax your employer deducts from your paycheque varies based on where you fall inside the federal and Ontario tax brackets. Federal income tax rates in 2023 range from 15% to 33%. Ontario income tax rates in 2023 range from 5.05% to 13.16%.

How much tax write off for small business? ›

Under the tax law, most small businesses (sole proprietorships, LLCs, S corporations and partnerships) can deduct 20% of their income on their taxes. Woo-hoo! Here's what this means: Say your small business generates $100,000 in profit. You can deduct $20,000 before ordinary income tax rates are applied.

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