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The corp tax rates that matter most are 9% and 15%. A Canadian-controlled private corporation pays a net 9% federal rate on active business income up to its business limit, usually $500,000, and 15% on the rest. The gap between them is the small business deduction, and claiming it, or not, decides most of your tax bill.
How does the small business deduction produce 9%?
The CRA describes the basic federal rate as 38% of taxable income, which falls to 28% after the federal abatement. The general reduction takes it to 15%. A qualifying corporation then claims the small business deduction, which is 19% of the least of three amounts: its active business income, its taxable income and its business limit. That leaves the 9% net rate.
| Step | Rate |
|---|---|
| Basic federal rate | 38% |
| After the federal abatement | 28% |
| General rate after the reduction | 15% |
| Small business rate after the deduction | 9% |
Provinces add their own rates on top. For the full list by province, see our company tax rates table.
Who can claim it?
Only corporations that were Canadian-controlled private corporations throughout the tax year may be able to claim it. A public company or a corporation controlled by non-residents is out, whatever its size.
Two things can shrink the $500,000 limit. Taxable capital employed in Canada between $10 million and $50 million reduces it in a straight line, and above $50 million it’s gone. Passive investment income also matters: when the adjusted figure passes $50,000 the limit starts to fall, and at $150,000 it’s nil. So a small company sitting on a big investment portfolio can lose the deduction even though its business income is modest.
And if you control more than one corporation, they generally share a single limit. The CRA has associated corporations file Schedule 23 to split it, and the percentages can’t add up to more than 100%.
What happens on the dollar above the limit?
This is the part people get wrong. Take a British Columbia private corporation with $600,000 of active business income. The corporate tax calculator gives $60,000 federal and $22,000 provincial, $82,000 in total, or 13.7% of the profit.
At $500,000 the same company owes $55,000, or 11%. So the extra $100,000 costs $27,000. That’s 27 cents on each added dollar, well above the average rate. If you can time a bonus or a purchase into a year when profit sits under the limit, it can pay off.
Why doesn’t the calculator match my return?
Our estimate uses the rate and limit for your province and nothing else. It leaves out the taxable capital and passive income cuts, associated corporations and any credits. It also treats the whole year at one set of rates, which is wrong if your province changed a rate mid year. Ontario is the current case, with a cut in the lower rate on 1 July 2026, and the calculator uses a derived blend for a calendar year that no official page publishes.
Your fiscal year end can also push you into a different rate period. The federal figures are fixed, but a province can change its part on any date.
What happens to the money after the company pays tax?
Corporate tax is the first layer. When you pay yourself, you face personal tax on salary or dividends. Try the dividend tax calculator for the second layer and the income tax calculator if you take a salary. Payroll withholdings on a salary have their own tool, the payroll remittance calculator.
We don’t compare salary and dividends here. The right mix depends on your province, your other income and how much you need to take out, and the results move each year.
Where the numbers come from
The federal rates, the 19% deduction rate, the $500,000 limit and the two reduction ranges come from the Canada Revenue Agency’s corporation tax rates page and its T2 corporation income tax guide, chapter 4, read in September 2026. The BC rates are from the CRA’s British Columbia page. The example is our own calculation.
Frequently asked questions
What is the small business deduction?
It's a federal deduction equal to 19% of the least of your active business income, taxable income and business limit. It takes the net federal rate from 15% to 9%.
Who qualifies for the 9% rate?
Corporations that were Canadian-controlled private corporations throughout the tax year. Public corporations and those controlled by non-residents don't qualify.
What is the business limit?
The CRA guide puts it at $500,000 for a corporation with no associated corporations. Some provinces use a different limit for their own part.
Can the limit be reduced?
Yes. Taxable capital between $10 million and $50 million reduces it, and so does adjusted passive investment income between $50,000 and $150,000.
Do associated companies each get $500,000?
No. They share one limit and allocate it on Schedule 23.
- How Canadian income tax works: brackets and credits
How federal and provincial Canadian income tax stack up, what marginal and average rates mean, and how credits and deductions change your bill
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.