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Small business tax rates in Canada work out to roughly 9% to 12% on the first $500,000 of profit in a corporation, depending on the province. That’s the federal 9% plus whatever your province adds. Sole proprietors get no business rate at all, because they’re taxed as individuals.
What are the federal small business tax rates?
The federal number is 9%. The CRA reaches it by taking the 38% base rate, subtracting a 10% federal abatement and then a 19% small business deduction. Only a Canadian-controlled private corporation (a CCPC) can claim that last step. Above the limit, the general federal rate is 15%.
Provinces add a second layer. Some, like Manitoba and Yukon, charge nothing on small business income. Others charge 2% or 3%. So the answer to “what’s my rate?” is always two numbers added together, and the province is the one that moves.
Combined small business rates by province
| Province or territory | Combined small business rate | General combined rate |
|---|---|---|
| Ontario, 2026 calendar year (blend) | about 11.7% | 26.5% |
| Ontario, full year after the July 2026 cut | 11.2% | 26.5% |
| British Columbia | 11% | 27% |
| Manitoba | 9% | 27% |
| New Brunswick | 11.5% | 29% |
| Nova Scotia (limit $700,000) | 10.5% | 29% |
| Yukon | 9% | 27% |
| Northwest Territories | 11% | 26.5% |
| Nunavut | 12% | 27% |
Alberta, Quebec, Saskatchewan, Prince Edward Island and Newfoundland and Labrador are missing from the table. I couldn’t read every official page for them, and I’d rather leave a gap than print a rate you might rely on. Try the corporate tax calculator for a first estimate and check the province’s own page before you act.
Why does Ontario show two rates?
Ontario cut its small business rate from 3.2% to 2.2% on 1 July 2026. A company with a December year end got the old rate for half the year and the new one for the rest. The blend by days comes to about 2.7% provincial, or 11.7% combined. That figure is my own arithmetic, not a number Ontario publishes, so treat it as a close guess. A different year end gives a different blend.
What happens to profit above the $500,000 limit?
It’s taxed at the general rate instead. Say a federal-only picture for a CCPC with $600,000 of active business income: the first $500,000 at 9% is $45,000, and the last $100,000 at 15% is $15,000, so $60,000 in all. That’s an average of 10% across the whole $600,000. Add your province’s two layers on top and you have a ballpark combined bill.
It’s a simplification. The limit can shrink or be shared, as the section further down explains, so the real number may land higher.
Is a corporation cheaper than working for yourself?
Not by as much as people expect. Take an Ontario owner with $120,000 of profit. As a sole proprietor, the self-employed tax calculator shows $25,481.56 of income tax and $9,292.90 of CPP, so $34,774.46 in all.
Now put that profit in a corporation. It pays $14,035.20 and keeps $105,964.80. Pay all of that out as ordinary (non-eligible) dividends and the dividend tax calculator adds $13,813.17 of personal tax. The two layers total $27,848.37.
Compare that to the $25,481.56 of income tax alone. The corporation costs a little more when you take everything out. What it buys you is timing: profit you leave inside pays only the corporate rate until you pull it out. It also skips CPP, which sounds nice until you remember that CPP is pension.
So if you only need a few thousand bucks a month to live on and plan to reinvest the rest, a corporation can make sense. If you spend every dollar you earn, it mostly adds paperwork.
What catches small companies out
Three things, mostly.
The $500,000 limit is shared among associated corporations, so two companies you control may split one limit. The limit shrinks when a corporation earns a lot of passive income, such as interest and rent, and when its taxable capital is very large. And the small business rate applies to active business income, not to every dollar the company earns.
The calculator leaves out all three, plus credits. If your company pays wages, add the payroll remittance calculator to see what you owe each pay period. For the deduction itself, read our page on the small business deduction.
Where these figures come from
The federal rates and the small business limit come from the CRA‘s corporation tax rates page and the T2 corporation guide, as read on 29 September 2026. Provincial rates come from the CRA’s page for each province, apart from the ones listed as unchecked. The Ontario blend and the $600,000 example are my own calculations. The maths behind the other examples runs in our calculators, and none of it is tax advice or comes from the government.
Frequently asked questions
What is the small business tax rate in Canada?
The federal rate is 9% on the first $500,000 of active business income for a CCPC. Your province adds its own rate, so the total runs from about 9% to 12%.
Who can claim the small business rate?
Only a Canadian-controlled private corporation. Sole proprietors and partners pay personal tax on their share of profit instead.
What is Ontario's small business rate in 2026?
Ontario cut its rate from 3.2% to 2.2% on 1 July 2026. For a calendar-year company we estimate a blend of about 2.7%, which is our own calculation, not a published figure.
Does the $500,000 limit apply to each company I own?
Not always. Associated corporations share one limit, so check with the CRA's Schedule 23 before you assume each company gets its own.
Do I pay tax again when I take money out?
Yes. Salary and dividends are taxed on your personal return. That second layer is why the corporate rate alone doesn't tell you what you keep.
- 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