Updated Checked by the Tax-Services.ca editorial team How we check
A manufacturer in Canada pays the same federal corporate rate as anyone else: 15% on general income, or 9% on the first $500,000 for a Canadian-controlled private corporation that qualifies for the small business deduction. The manufacturing tax considerations that actually change the bill are equipment write-offs, SR&ED credits and how you handle sales tax on inputs.
What tax rate does a Canadian manufacturer pay?
There used to be a special federal rate for manufacturing profits. The CRA’s current rates page now lists reduced rates only for qualifying zero-emission technology manufacturers, at 7.5% general and 4.5% small business. Everyone else uses the standard rates and adds the provincial rate.
| Item | Rate |
|---|---|
| Federal general rate (net) | 15% |
| Federal small business rate | 9% on up to $500,000 |
| Ontario general, combined with federal | 26.5% |
| Ontario small business, combined, from 2027 | 11.2% |
| Ontario small business, calendar 2026, blended | about 11.7% (derived, not published) |
The Ontario small business rate fell from 3.2% to 2.2% on 1 July 2026. A corporation with a calendar year gets a blend for 2026, and that blend is our own calculation. A different year end gives a different figure, so treat the 11.7% as a guide only.
How much would a small manufacturer owe?
Say an Ontario corporation controlled by Canadians earns $300,000 of taxable income in 2026. The calculator engine gives $27,000 of federal tax and about $8,088 of Ontario tax, for roughly $35,088 in total. That’s about 11.7% of the income, using the blended rate above.
Now take a larger firm with $1,000,000 that doesn’t qualify for the small business rate. The same tool gives $150,000 federal and $115,000 provincial, or $265,000 at 26.5%. That’s a gap of roughly $230,000 on the same profit, so the small business deduction is worth checking first. Run your own figures in the corporate tax calculator, which ignores the taxable capital limit and handles passive income and associated corporations only through optional boxes.
Are machinery and equipment purchases deductible faster?
Usually, yes.
This is where manufacturers gain most. Manufacturing and processing machinery is generally Class 53, and the CRA’s accelerated investment incentive gives bigger first-year write-offs. Its phase-out schedule reads 100% for property available for use up to 2023, 75% for 2024 and 2025, and 55% for 2026 and 2027.
The Department of Finance announced a Productivity Mega Deduction on 15 September 2026, giving immediate expensing on many asset types for property acquired on or after that date. It’s proposed, not enacted, and draft legislation is out for consultation. Finance also says manufacturing and processing buildings are not covered by it but continue to qualify for temporary immediate expensing. Because all this is moving, check the CRA’s current class rules with your accountant before buying a big machine late in the year.
One practical point sits underneath the tax rules. A deduction only helps if you have taxable income to use it against. A plant with a thin year can claim less CCA on purpose, since you choose how much to take, and keep the rest for a better year.
What is SR&ED and does a factory qualify?
SR&ED is the federal program that pays credits on qualifying research and experimental development. Making a new product or improving a process can count, but ordinary production usually doesn’t. A CCPC can earn a higher 35% credit on qualifying spending up to an expenditure limit. The CRA’s page on the SR&ED investment tax credit says that for tax years beginning after December 15, 2024, the limit is $6 million (it was $3 million), and it starts to shrink when taxable capital reaches $15 million and falls to nil at $75 million.
A quick example. A qualifying CCPC spends $100,000 on eligible current costs for a new moulding process and stays under its limit. At 35% the credit is $35,000, and on current spending the CRA treats it as fully refundable at that rate. Capital spending is only 40% refundable, so don’t assume the same cash back there. Claims need technical records from the time the work happens, so start those files early: test notes, drawings, and who worked on what.
How does sales tax hit a manufacturer?
Raw materials, parts and equipment carry GST/HST, and a registered business normally recovers it through input tax credits. Selling into the province adds tax to your invoices. The GST/HST calculator shows the tax on a price, and the profit margin calculator helps test if your pricing still works after costs.
Cash flow is the annoying part. You pay HST on a large equipment order up front and wait for the return to get it back, so plan for it. On a $200,000 press ordered in Ontario, that’s $26,000 of HST out the door before the credit comes back. Payroll is another steady outflow, and the payroll remittance calculator covers CPP and EI on wages.
Mistakes and limits
People assume the old manufacturing rate still exists. It doesn’t for most firms. They also overlook that the $500,000 small business limit is shared among associated corporations, so a group of companies can’t each claim a full $500,000. And a big equipment claim in a year with low profit can waste the deduction, since you can choose how much CCA to take.
This page doesn’t cover transfer pricing, customs duties or provincial credits. Those are for your accountant, and a few bucks of advice on them can save a lot more.
What this page is based on
Federal rates, the $500,000 limit and the zero-emission rates come from the CRA‘s corporation tax rates page. The accelerated investment incentive, SR&ED and Ontario details come from CRA and Department of Finance pages, and the Ontario blend is our own derived figure. We rechecked them on 29 September 2026. We aren’t a government service and we don’t speak for one.
Frequently asked questions
What is the federal tax rate for a manufacturer?
The CRA lists 15% net for general income and 9% for CCPCs on the small business limit of $500,000. Reduced rates apply only to zero-emission technology manufacturers.
Is manufacturing equipment written off faster?
Class 53 machinery gets bigger first-year write-offs under the accelerated investment incentive, which is being phased out. A newly proposed deduction is not yet law.
Can a factory claim SR&ED?
Only work that meets the SR&ED definition qualifies, such as developing a new product or process. Routine production usually doesn't.
Can a manufacturer recover HST on materials?
A registered business generally recovers GST/HST on inputs through input tax credits, if the purchase is for commercial activities.
How is Ontario's small business rate for 2026 worked out?
It fell to 2.2% on 1 July 2026, and a calendar-year company gets a blend. Our 11.7% combined figure is derived, so confirm it for your year end.
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