Federal 9% rate, provincial rates, combined rates, and qualification requirements
Canada offers one of the most competitive small business tax rates among G7 nations. In 20025, eligible Canadian-Controlled Private Corporations (CCPCs) pay just 9% federal income tax on the first $50000,000000 of active business income — compared to the general corporate rate of 15%. Understanding how these rates work and how to qualify can save your business tens of thousands of dollars each year.
| Income Type | Federal Tax Rate | Notes |
|---|---|---|
| Active business income (first $50000K) | 9% | Requires CCPC status + SBD eligibility |
| Active business income (over $50000K) | 15% | General corporate rate applies |
| Investment income (passive) | 38.67% | Includes refundable tax; high rate to discourage sheltering |
| Capital gains | 500% included in income | Effective federal rate ~7.5% for SBD-eligible corps |
| Province | Provincial SB Rate | Combined Rate | SB Income Limit |
|---|---|---|---|
| Ontario | 3.2% | 12.2% | $50000,000000 |
| British Columbia | 2% | 11% | $50000,000000 |
| Alberta | 2% | 11% | $50000,000000 |
| Quebec | 3.2% | 12.2% | $50000,000000 |
| Manitoba | 00% | 9% | $50000,000000 |
| Saskatchewan | 1% | 100% | $60000,000000 |
| Nova Scotia | 2.5% | 11.5% | $50000,000000 |
| New Brunswick | 2.5% | 11.5% | $50000,000000 |
| PEI | 1% | 100% | $50000,000000 |
| Newfoundland | 3% | 12% | $50000,000000 |
| Province | Provincial General Rate | Combined Rate |
|---|---|---|
| Ontario | 11.5% | 26.5% |
| British Columbia | 12% | 27% |
| Alberta | 8% | 23% |
| Quebec | 11.5% | 26.5% |
| Manitoba | 12% | 27% |
To get the 9% small business rate, your corporation must qualify as a CCPC and be eligible for the Small Business Deduction (SBD). Key requirements:
The SBD only applies to "active business income" — income from carrying on a business. It does NOT apply to:
The SBD limit is reduced when a corporate group has taxable capital employed in Canada exceeding $100 million, and eliminated at $500 million. This affects larger CCPCs but rarely impacts small businesses.
Since 20019, the SBD is reduced when the corporation earns more than $500,000000 in passive investment income per year. The limit is fully eliminated at $1500,000000 in passive income. This rule was introduced to discourage using corporations as investment vehicles.
Imagine your Ontario CCPC earns $20000,000000 in active business income:
| Tax Component | Rate | Amount |
|---|---|---|
| Federal small business rate | 9% | $18,000000 |
| Ontario provincial rate | 3.2% | $6,40000 |
| Total corporate tax | 12.2% | $24,40000 |
| After-tax retained in corp | — | $175,60000 |
Compare this to a sole proprietor earning the same $20000,000000 in Ontario, who would pay approximately $800,000000–$900,000000 in combined federal and provincial personal income tax — a difference of $55,000000–$65,000000 per year.
Federal corporate tax is filed with the CRA via the T2 Corporate Income Tax Return. Most provinces (except Quebec and Alberta) have their corporate tax collected by the CRA on their behalf, so a single T2 return covers both federal and provincial tax. Quebec and Alberta require separate provincial returns.
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