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Deferred income tax is tax you owe, or will save, in a later year because accounting and tax rules count the same item at different times. It shows up on a company’s balance sheet as a deferred tax liability or asset. For a person, the same word usually just means tax you’ve pushed into the future, the way an RRSP does.
Two meanings share one name, and search results mix them. We cover the accounting one first, then the personal one, since that’s where most readers actually have money at stake.
What is deferred income tax in accounting?
A business keeps two sets of numbers. The financial statements follow accounting standards. The tax return follows the Income Tax Act. When a cost is counted in one year for the books and in another for the return, you get a temporary difference, and the tax on that difference is booked as deferred tax.
The effect is a timing gap, not a different total. Over the life of the asset both sets of rules give the same total deduction. Only the year changes.
Under IFRS the standard is IAS 12 and the term is deferred income tax. Private companies using ASPE, the Canadian standard for smaller firms, follow section 3465, and the older label there is future income tax. You’ll see both names, and they mean the same idea.
How do you work out a deferred tax balance?
Take the temporary difference and multiply it by the tax rate that will apply when it reverses. A difference that means more tax later is a liability. One that means less tax later is an asset, and the standards only let you book it if it’s probable there will be profit to use it against.
| Item | Figure |
|---|---|
| Federal general corporate rate | 15% |
| Federal small business rate, first $500,000 | 9% |
| Ontario general rate | 11.5% |
| Ontario combined general rate | 26.5% |
These are the corporate rates in the data behind our corporate tax calculator. The Ontario small business rate is a different story. It changes on 1 July 2026, and a calendar-year company gets a blended figure that isn’t published anywhere, so we won’t quote one. A company with another year end needs its own calculation.
A worked example with a piece of equipment
These amounts are assumed for illustration only. A company buys equipment for $10,000. The books depreciate it by $2,000 in year one. The tax rules allow a $3,000 deduction that year. That’s a $1,000 difference.
At the 26.5% combined Ontario general rate, the company books a deferred tax liability of $265. It has paid less tax this year and will pay more later as the gap closes. Nothing vanishes. The payment just moves.
One more thing. If you file a return and never prepare statements under these standards, you have no deferred tax account to manage.
Is tax deferral the same thing for a person?
Not in the accounting sense, but the idea is familiar. You defer tax when income is taxed in a later year than you earned or gained it. Three common ways are an RRSP, unrealised capital gains and money held in a registered plan.
Take an RRSP. Put $10,000 in while your taxable income is $90,000 in Ontario, and the tax you pay falls by about $2,965 that year (basic personal amounts only). Take the same $10,000 out later when your income is $50,000, and the tax is about $2,251. That gap of roughly $714 is the prize for deferring, before any growth inside the plan. The RRSP calculator and the RRSP withdrawal tax calculator let you try your own numbers.
Capital gains work the same way. A gain you haven’t realised isn’t taxed. Sell the shares and the capital gains tax calculator shows the bill. It assumes a 50% inclusion rate. The proposal to raise that to two-thirds was cancelled by the Prime Minister’s release of 21 March 2025, though we couldn’t find the 2026 rate on a CRA page, so check before you sell.
Mistakes and limits
People treat deferral as a saving. It usually isn’t one. You pay the tax later, and if your rate is higher then, you lose. Deferring wins when your future rate is lower or when the money grows in between.
Another trap is mixing up the balance sheet item with the tax you owe this year. A deferred tax liability is not a bill from the CRA. It’s an accounting estimate of a future bill.
And don’t use our examples as advice for a real set of statements. A company’s auditor or accountant decides the rate, the differences and whether an asset can be booked.
Where do these numbers come from?
The corporate rates come from the CRA corporation tax rates page and the T2 guide, in our 2026 business data file, and we retrieved them on 29 September 2026. The description of deferred tax follows the IFRS Foundation’s IAS 12 and the CPA Canada ASPE section 3465 as described in public summaries. The tax figures in the RRSP example use the 2026 federal and Ontario rates in our engine. This site has no connection with the CRA or any government body.
Frequently asked questions
What is deferred income tax?
It is income tax that will be paid or saved in a later year because accounting and tax rules count an item at different times. It appears on the balance sheet as a liability or an asset.
Is deferred income tax the same as future income tax?
They describe the same idea. IAS 12 under IFRS uses deferred income tax, while the ASPE standard for private companies has used future income tax.
Does deferred tax mean I owe the CRA money now?
No. It is an accounting estimate of tax in later years, not a bill for this year.
Does an RRSP defer tax?
Yes. You get a deduction when you contribute and pay tax on withdrawals. It saves money if your later rate is lower or the funds grow.
Are capital gains taxed when they are not sold?
Generally the gain is taxed when you realise it by selling. Check the CRA page for the inclusion rate that applies.
- 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.