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Business tax in Canada depends first on how you’re set up. A corporation pays its own tax, and a Canadian-controlled private corporation (CCPC) gets a federal rate of 9% on its first $500,000 of active business income. Most other corporate income is taxed federally at 15%. A sole proprietor has no separate tax at all. The profit lands on the owner’s personal return.
What are the federal corporate rates?
The basic rate of Part I tax is 38% of your taxable income, 28% after the federal tax abatement.
Corporation tax rates, Canada Revenue Agency, canada.ca
From there, the general tax reduction takes most corporations down to 15%. The small business deduction takes a CCPC down to 9%, but only on income up to the business limit. Above it, the 15% rate applies again.
| Item | Rate or limit |
|---|---|
| Federal general rate | 15% |
| Federal small business rate (CCPC) | 9% on the first $500,000 |
| Ontario general provincial rate | 11.5% |
| Ontario small business rate | 3.2%, cut to 2.2% from 1 July 2026 |
| Provincial business limits | $500,000 to $700,000 depending on the province |
Provinces add their own rates, usually a lower one for small business income and a higher one for the rest. Quebec and Alberta collect their own corporate tax and set their own rates, so the CRA doesn’t do it for them.
Who gets the 9% rate?
Only a CCPC, which is a private corporation controlled by Canadian residents, and only on active business income such as the money a shop or consulting practice earns. Passive income, like interest from a big investment pile, doesn’t get the low rate. Think of Lena, who runs a two-person design studio through her own corporation in Hamilton. Her first $500,000 of profit gets the 9% federal rate. If she ever sold shares to a non-resident owner and lost CCPC status, the same profit would face the general rate.
How much small business tax does a corporation pay in Ontario?
Here’s the estimate from our corporate tax calculator for a CCPC with $300,000 of active business income in Ontario. Federal tax is $27,000 and Ontario adds $8,088, so the bill is $35,088, or 11.7%.
That 11.7% needs a warning. Ontario’s small business rate changed in the middle of 2026, and the calculator blends the old and new rates by days for a calendar year. The blend is our own arithmetic, not a published number, and a corporation with a different year end will get a different figure. Once a full year at the lower 2.2% rate applies, adding it to the federal 9% gives 11.2% (our own sum). The CRA’s combined table wasn’t available to confirm that sum, so treat it as a working figure.
| Ontario, calendar 2026 (estimate) | Total tax | Average rate |
|---|---|---|
| CCPC, $100,000 of income | $11,696 | 11.7% |
| CCPC, $300,000 of income | $35,088 | 11.7% |
| CCPC, $700,000 of income | $111,480 | 15.9% |
| Not a CCPC, $300,000 of income | $79,500 | 26.5% |
See the jump at $700,000? The first $500,000 gets the low rate and the last $200,000 is taxed at the general 26.5% combined rate. And the last row shows why the CCPC label matters. The same $300,000 costs $44,412 more without it.
Federal tax alone shows the same pattern. On $700,000, the first $500,000 at 9% is $45,000 and the last $200,000 at 15% is $30,000, so $75,000 before any province gets its share.
When does a corporation have to file?
The T2 return is due six months after the end of the fiscal year. A late return costs 5% of the unpaid tax that was due on the deadline, plus 1% for each full month it’s late, for up to 12 months. If the CRA has penalized you in the previous three years, it’s 10% plus 2% a month, for up to 20 months. These penalties apply to unpaid tax, so late filing with nothing owing is a lesser problem.
When the balance itself is due is a separate date, earlier than the return. The rule depends on your situation, so check it on the CRA’s corporation payments page before you plan cash around it.
What about a sole proprietor or a payroll?
If you’re unincorporated, you report net business income on your personal return and pay income tax and both halves of CPP. The self-employed tax calculator gives an estimate, though it leaves out EI and deductions don’t reduce the CPP it shows, so read it as a rough guide. Hiring changes the picture too. Deductions you withhold from staff have to be sent to the CRA, and the payroll remittance calculator estimates the amount per pay period.
Is incorporating worth it for a small business?
Only you can say, and it depends on how much profit you leave in the company. A corporation’s low rate applies to what the company earns, but the moment you pull money out as salary or dividends, personal tax comes into play. For a ballpark, a business clearing $40,000 a year and spending all of it on living costs often gains little, while one earning well beyond what the owner needs to live on may defer real tax. Incorporation also adds yearly filings and accounting costs, so price those in before you decide.
Mistakes that raise the bill
The 9% rate is shared. If your corporation is associated with others, they split one $500,000 limit between them. And the limit can shrink for a corporation with large taxable capital or heavy passive investment income. The calculator ignores both, along with credits, so a real return can differ.
Another slip is treating the small business rate as automatic. Only CCPCs qualify. A corporation that loses that status pays the general rate, and the table above shows how big the gap is.
And don’t confuse profit with cash you can take out. The tax above is on the corporation. Paying yourself a salary or dividend adds personal tax, which the dividend tax calculator can estimate.
Where this information comes from
Federal and Ontario rates, the business limits and the filing penalties come from the Canada Revenue Agency‘s corporation tax rate and penalty pages, read in September 2026. The provincial figures are the 2026 values in our data files. The blended Ontario rate is derived. This is an independent guide, separate from any government body.
Frequently asked questions
What is the federal tax rate for a small business corporation?
It's 9% for a Canadian-controlled private corporation on income up to the business limit, which is $500,000 federally.
What is the general federal corporate rate?
After the abatement and the general reduction it's 15% for most corporations.
When is the T2 return due?
Six months after the end of the corporation's fiscal year.
What is the penalty for filing a corporate return late?
5% of the unpaid tax due on the deadline, plus 1% for each full month late, up to 12 months. It rises to 10% plus 2% a month for repeat cases.
Do sole proprietors pay corporate tax?
No. The business profit goes on the owner's personal return and is taxed at personal rates.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST