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Associated corporations under CRA rules share one small business limit of $500,000 a year. If you control two companies, or you and a family member each hold 25% or more of the same ones, you can’t each claim the full low rate. The group splits one limit, and the split is written down on a form.
When are two corporations associated?
The test is about control, not about what the companies do. Two corporations are associated when the same person controls both, or when the same group of people controls both. The CRA points out that a group can be any two or more people, and they don’t have to act together or know each other.
Family makes it wider. Related persons include people connected by blood, marriage, common-law partnership or adoption. If you control one company and your sister controls another, the CRA can look at whether one of you owns at least 25% of the shares in the other’s company. That is the 25% rule, and it catches more families than people expect.
You’ll also see the words related, connected and affiliated used loosely. For the small business limit, association is the test that applies.
What does association cost you?
For a Canadian-controlled private corporation, the federal small business rate is 9% on the first $500,000 of active business income. The general rate is 15%. The gap of 6 points is where the cost sits, and a province adds its own difference on top.
| Item | Federal 2026 |
|---|---|
| Small business rate | 9% |
| General rate | 15% |
| Business limit for one corporation | $500,000 |
| Limit for a group of associated corporations | $500,000 in total |
| Form for the split | T2 Schedule 23 |
Take the example the CRA itself uses, a pair of companies with $700,000 of profit between them. They still share one $500,000 limit. They don’t get $1,000,000 because there are two names on the door.
A worked example with two companies
Say each of your two associated companies earns $300,000 of active business income. Apart, each would pay 9% federal tax, or $27,000, for $54,000 together. Sharing one limit, the first $500,000 is taxed at 9% and the last $100,000 at 15%, which comes to $60,000. That’s $6,000 more federal tax, and it’s what association does to a pair of busy companies. Our corporate tax calculator has a field for the number of companies that share one limit, and it shows $30,000 for each when you enter two.
Note that the tool divides the limit equally. In real life you choose the split, so don’t read its answer as your agreement.
How do you split the limit on Schedule 23?
You fill in Schedule 23, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit. Each company gets a percentage, and the percentages can’t add up to more than 100. Only one of the associated corporations needs to file it for a calendar year. If none is on file when the CRA assesses a return, it asks for one.
Here is where people lose money. Take the same two companies, but now each earns $200,000. Any split that uses the whole limit gives $36,000 of federal tax in total. Now allocate $350,000 to one company and $150,000 to the other. The first can’t use $150,000 of its share, the second earns $50,000 more than its share, and total federal tax is $39,000 instead of $36,000. So think about expected profits before you sign.
Mistakes and limits
A few traps come up again and again.
- Forgetting a company you hold through a spouse, a trust or a holding company.
- Assuming a new company in the same family starts with its own $500,000.
- Leaving Schedule 9, the CRA schedule for related and associated corporations, blank or out of date.
- Expecting the federal result to carry over. Provinces run their own small business limits and rates, and some changed in 2026.
The calculator also ignores the extra reductions for large taxable capital and for passive investment income. We couldn’t confirm every provincial rate on an official page either, so use the tool as a first estimate. For a payroll side of a group, see the payroll remittance calculator, and to see what you’d take personally from profit, try the dividend tax calculator. A sole proprietor who isn’t incorporated can compare with the self-employed tax calculator.
Do you need an accountant? If the ownership includes trusts, holding companies or family members in several provinces, yes. Association questions turn on details of share ownership that a web page can’t see.
Where the numbers come from
The business limit, the 9% and 15% federal rates and the rules on control come from Canada Revenue Agency pages, including the T2 guide and the CRA page on how relationships affect the small business deduction. We read them in September 2026. The Income Tax Act holds the full legal tests.
Frequently asked questions
What makes two corporations associated?
Mainly control. The same person or group controlling both makes them associated, and family ties plus a 25% shareholding can do it too.
How much is the small business limit for associated companies?
$500,000 in total for the whole group, federally. You agree on how to divide it.
Which form splits the business limit?
Schedule 23. Only one of the associated corporations needs to file it for a calendar year.
What is the federal tax difference?
9% on income within the limit against 15% above it, a gap of 6 percentage points.
Are related and associated corporations the same thing?
The words overlap in everyday use, but the small business limit depends on association. Check your ownership against the CRA page on relationships.
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Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.