Updated Checked by the Tax-Services.ca editorial team How we check
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 whether you can claim it decides most of your tax bill.
How does the small business deduction produce 9%?
The CRA starts from a basic federal rate of 38%, 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.
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
| 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. A few provinces also set a higher provincial limit than the federal $500,000: the CRA’s table shows $700,000 in Nova Scotia and $600,000 in Prince Edward Island and Saskatchewan, so check yours.
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%. Two sisters who each own half of a bakery and a catering company, say, can’t each claim a full $500,000 at the low rate.
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.
What should you check before year end?
Three quick questions save a lot of grief. Is your active business income close to the limit? Is investment income in the company creeping toward $50,000? And does anyone else you control own a company that shares the limit? If the answer to any of them is yes, a ballpark check a month or two before year end beats finding out at tax time, when it’s too late to move a few bucks of income or a purchase into the other year.
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 and the $500,000 limit come from the Canada Revenue Agency‘s corporation tax rates page, linked above, which we opened in October 2026. The 19% deduction rate and the two reduction ranges come from the CRA’s T2 corporation income tax guide, chapter 4. The BC rates are from the CRA’s British Columbia page, and the example is our own calculation. We’re an independent site and not part of any government.
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