Basic Guide to Corporate Taxes
The basic rate of Part I tax is 38% of your taxable income, 28% after Federal Tax Abatement. The Federal Tax Abatement is equal to 10% of taxable income earned in the year in a Canadian province or territory less, for any tax year that begin before 2019, income exempt under paragraph 149(1)(t). The federal tax abatement reduced Part I tax payable. Income earned outside Canada is not eligible for the Federal Tax Abatement.
After the General Tax Reduction, the net tax rate is 15%.
Small Business Deduction
Corporations that were Canadian-Controlled Private Corporations (CCPC’s) throughout the tax year may be able to claim the Small Business Deduction (SBD).
The SBD reduces Part I tax that the corporation would otherwise have to pay.
The SBD is equal to a certain percentage (the SBD rate) of whichever of the following amounts is less:
- the income from active business carried on in Canada (line 400)
- the taxable income (line 405)
- the business limit (line 410)
- either one of the following:
- for tax years starting before 2019, the amount on line 427, which is the reduced business limit on line 425 less the amount of the business limit you assigned under subsection 125(3.2)
- for tax years starting after 2018, the amount on line 428, which is the reduced business limit on line 426 less the amount of the business limit you assigned under subsection 125(3.2)
The SBD rates are:
- 19% effective January 1, 2019
- 18% effective January 1, 2018
- 5% before 2018
The basic rate of Part I tax being 38% of your taxable income, 28% after the federal tax abatement, these SBD rates result in the following tax rates:
- 9% effective January 1, 2019
- 10% effective January 1, 2018
- 5% before 2018
If the rate changes during the tax year, you have to base your calculation on the number of days in the year that each rate is in effect.
For more information see, CRA Small Business Deduction
Provincial or territorial rates
Generally, provinces and territories have two rates of income tax: a lower rate and a higher rate.
The lower rate applies to the income eligible for the federal small business deduction. One component of the small business deduction is the business limit. Some provinces or territories choose to use the federal business limit. Others establish their own business limit.
The higher rate applies to all other income.
Provincial and territorial tax rates (except Quebec and Alberta)
The following table shows the income tax rates for provinces and territories (except Quebec and Alberta, which do not have corporation tax collection agreements with the CRA). These rates are in effect January 1, 2020, and may change during the year.
|Province/Territory||Lower Rate||Higher Rate|
|Newfoundland & Labrdor||3%||15%|
For more information, go to Dual tax rates.
Tax laws are complex and change constantly. As such, it is advisable to obtain advice from a tax professional and have financial statements and Corporate T2 tax returns prepared by a CPA.
BizWize Inc. can take the headache out of taxes! We provide the service that fits your needs best, we can either refer you to one of our trusted allied CPA’s or, we can do the heavy lifting for you. Bizwize will work with the CPA on your behalf providing you a holistic and efficient service so you can back to business.
See the following publications for more information
Filing corporate taxes improperly can lead to fines and frustrating audits. Let us help you. For assistance with finding qualified and trusted professional CPA’s to paperwork and finer details, Bizwize is here for you
We’re working hard to get you the most up to date information you need to run your business smoothly and easily. We are working toward creating resources to fit all your business needs.
Subscribe to stay up to date on newly released resources!
For creative and strategic solutions for your business needs