In Canada’s federal tax system, the small business tax rate is the

tax rate In a tax system, the tax rate is the ratio (usually expressed as a percentage) at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, and effective. These rates can also be p ...

paid by a

small business Small businesses are types of corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to ap ...

. As of 2019, the small business tax rate is 9% The general

corporate tax A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at ...

rate is 28%. Additionally, each province or territory operates its own corporate tax system, with varying treatment for small businesses.

Provincial taxation

Corporate taxes in Newfoundland and Labrador corporate tax rates span from 3 per cent at the lowest rate to 15 per cent at highest rate; in Nova Scotia from 3% to 16%, in New Brunswick from 2.5% to 14%, in Prince Edward Island from 3%to 16%, in Ontario from 3.2% to 11.5%, in Manitoba 12% in Saskatchewan, from 2% to 12%, in British Columbia from 2% to 12%, in Nunavut from 3% to 12%, in the Northwest Territories, from 4% to 11.5%, and in Yukon from 2% to 12%. In most cases, the provinces and territories have two rates of income tax—the lower rate and the higher rate. Businesses that are eligible for the federal small business deduction (SBD) are also eligible for a lower corporate tax rate at the provincial and territorial levels. According to a June 1, 2020 report, there are two or occasionally three levels of corporate taxes in the provinces and territories—the first includes small businesses, with income generally up to $500,000, that are eligible for the "small-business deduction" (SBD); the second (where it exists) includes businesses engaged in manufacturing and processing (M&P) with income greater than $500,000 that are not eligible for federal SBD (%); and the third includes general income businesses, with non-M&P income, that are not eligible for SBD (%). Québec has three levels—the rate for the first level is c. 4% to 5%, for the second level it is 11.50%, and for the third level it is 11.50%.

Definitions

A small business in Canada is defined as a Canadian-based

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

(i.e. one incorporated under the federal

Canada Business Corporations Act The ''Canada Business Corporations Act'' (CBCA; french: Loi canadienne sur les sociétés par actions) is an act of the Parliament of Canada regulating Canadian business corporations. Corporations in Canada may be incorporated federally, under t ...

or similar provincial legislation) with fewer than 100

employee Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any other ...

s and under C$500,000 in annual

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For ...

. Small businesses are allowed to claim a "small business deduction" under the ''Income Tax Act''; the deduction enumerated in that Act is deducted from the 28% general tax rate, and means the net small business tax rate is as follows:

Tax rate by year

Passive income investment

Passive income investment is income from "fixed income investments", "dividend-paying stocks", interest, capital gain, rent, royalties and other earnings that are not directly related to the corporation's active main business income. This passive income can be significant for large corporations. New rules introduced in 2018, are based on the CCPCs "Adjusted Aggregate Investment Income" (AAII)—passive investment income—and "tie SBD eligibility to investment income earned by associated corporations." Under these new rules, taxes cannot be "avoided by using a holding company."

References

{{Reflist Corporate taxation Corporate taxation in Canada Taxation in Canada