Updated Checked by the Tax-Services.ca editorial team How we check
The small business deduction cuts a Canadian-controlled private corporation’s federal tax from 15% to 9% on its first $500,000 of active business income. On that slice it saves 6 cents per dollar of profit, or $30,000 a year at the limit. Most provinces add their own low rate on top.
What the small business deduction is
The name trips people up. It isn’t a business expense, like rent or supplies. It’s a discount on the tax rate, and the CRA gives it to a CCPC that earns active business income in Canada.
The federal build-up runs like this: a 38% base rate, less a 10% abatement, less the 19% deduction, which leaves 9%. The 19% applies to the smallest of three amounts: your active business income, your taxable income, and your business limit. The CRA’s corporation tax rates page confirms the 9% net rate for a CCPC claiming the deduction.
Small business deduction numbers at a glance
| Item | Figure |
|---|---|
| Federal base rate | 38% |
| Federal abatement | 10% |
| Small business deduction | 19% |
| Net federal small business rate | 9% |
| Federal general rate | 15% |
| Business limit | $500,000 |
| Limit reduced by taxable capital | between $10 million and $50 million |
| Limit reduced by investment income | between $50,000 and $150,000 |
Some provinces use their own limit. Nova Scotia’s is $700,000, which is higher than the federal one, and the CRA’s table lists $600,000 for both Prince Edward Island and Saskatchewan. We couldn’t confirm the exact reduction rules for passive income on the CRA pages we read, so check them if your company holds a lot of investments.
How much does it save a company with $650,000 of profit?
Take an Ontario corporation with $650,000 of active business income. The corporate tax calculator gives $98,230 of federal and provincial tax, an average rate of 15.11%. Federal tax is $67,500 and Ontario’s share is $30,730.
Untick the CCPC box and the same profit costs $172,250, which is 26.5%. So the deduction is worth $74,020 to this company in one year. Ontario’s number uses our own day-count blend for a calendar 2026 year, since the province cut its small business rate on 1 July 2026, and Ontario doesn’t publish that blend.
Break the federal piece down and it makes sense. The first $500,000 is taxed at 9%, which is $45,000, and the remaining $150,000 at 15%, which is $22,500. Add them and you get the $67,500 above. Had the whole $650,000 gone at 15%, the federal bill would have been $97,500.
What else do you get from claiming it?
Timing of the bill, for one. A CCPC that qualifies for the deduction can pay its balance three months after year end, not two, if it meets the CRA’s tests on taxable income and the business limit. Your return is still due six months after year end. That’s a real cash gain, but only if you don’t miss the conditions.
The other benefit is what the lower rate does to your dividends. Profit taxed at 9% federally leaves more inside the company. When you pay it out, the dividend tax calculator shows the second layer of tax that lands on you personally. Our guide to small business tax rates puts the two layers side by side.
Where people lose the deduction
Do you own two companies? They may count as associated, and then they share a single $500,000 limit. That’s the most common surprise. The rate also isn’t for investment income, and a company that isn’t a CCPC gets none of it.
Quebec sets its own rules, including a paid-hours test that’s beyond what the calculator models. Check those at Revenu Quebec if you’re there. The calculator skips credits, associated companies and both reductions in the table above, so treat a result near $500,000 as a floor for your bill. If you have staff, run the payroll remittance calculator too, because wages lower taxable income and raise remittances.
Is it worth planning around the limit?
For many owners, the practical question is what to do when profit sits in the ballpark of $500,000. Because wages are deductible, a company can sometimes bring taxable income under the limit by paying staff or the owner a salary, but that choice comes with its own tax and CPP cost, so run both sides before you decide. This is the sort of call where a chat with a CPA makes sense, since you need someone who can see your whole picture. Nothing here is advice, and we aren’t affiliated with any accountant or firm.
Where the numbers come from
The 38%, 10%, 19% and 9% build-up, and the $500,000 limit, come from the CRA‘s corporation tax rates page and the T2 corporation guide, as read on 29 September 2026. The balance due rule is from the T2 guide’s “before you start” chapter. Provincial limits come from each province’s CRA page. We don’t speak for the CRA, and the calculator is an estimate.
Frequently asked questions
What is the small business deduction in Canada?
It's a reduction in federal corporate tax for a CCPC. The rate falls to 9% on the first $500,000 of active business income, compared with 15% for the general rate.
Is the small business deduction the same as deducting business expenses?
No. Expenses lower your profit. The small business deduction lowers the tax rate charged on that profit.
What is the small business limit?
The federal limit is $500,000. A few provinces use another figure, such as $700,000 in Nova Scotia, and associated corporations share one limit.
Can a large company claim it?
The limit shrinks when taxable capital is between $10 million and $50 million, and it goes to nil at the top of that range.
When is the tax due if I claim it?
An eligible CCPC pays the balance three months after year end, if it meets the CRA's conditions. The return itself is due six months after year end.
- 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