Corporate taxes
We provide our small and medium size business clients with the taxation expertise and knowledge that they deserve throughout the year.
- Notice to Reader Financial Statements
- Corporate tax return filings (T2)
- GST/HST filings
- WSIB/EHT filings
- Tax planning
- SR&ED filling
- CRA representation
- Not-for-profit filings
What Are Corporate Taxes
Corporate taxes are levies imposed by governments on the profits earned by businesses. These taxes are a primary source of revenue for governments and are used to fund public services such as infrastructure, healthcare, and education. Corporate taxes are typically calculated as a percentage of a corporation’s net income, which is the revenue remaining after deducting operating costs, wages, depreciation, and other expenses.
Differences Between Corporate Taxes and Individual Taxes
| Aspect | Corporate Taxes | Individual Taxes |
|---|---|---|
| Taxpayer | Corporations and other business entities | Individuals, including sole proprietors and employees |
| Tax Base | Profits after deducting business expenses | Personal income, including wages, dividends, and investments |
| Tax Rate Structure | Often flat or tiered based on profit brackets | Progressive, flat, or regressive depending on jurisdiction |
| Deductions | Includes operating expenses, depreciation, and R&D credits | Includes personal allowances, mortgage interest, and education costs |
| Filing Requirements | Complex with potential audits | Simpler for most individuals but varies with income level |
| Legal Identity | Taxes are based on the corporation as a separate entity | Taxes apply to the individual’s earnings |
Practical Implications
- Corporations have more opportunities for tax optimization and deductions.
- Individuals typically face simpler tax filing processes compared to corporations.
Corporate Income Tax Overview
Corporate income tax (CIT) is the tax imposed on a corporation’s profits. In Canada, corporate income tax is levied by both federal and provincial/territorial governments. The tax applies to the net income of corporations after accounting for allowable business expenses and deductions.
Key Elements of Corporate Income Tax in Canada
| Element | Details |
|---|---|
| Taxable Income | Income earned by the corporation after subtracting allowable expenses, deductions, and credits. |
| Federal Corporate Tax Rate | – General Rate: 15% on taxable income. – Small Business Rate: 9% on the first $500,000 for CCPCs. |
| Provincial/Territorial Tax Rates | Vary by province, ranging from 0% to 16%, depending on the location and size of the business. |
| Taxable Entities | Applies to all corporations, including Canadian-Controlled Private Corporations (CCPCs), non-resident corporations, and public corporations. |
| Deductions | Corporations can deduct operating expenses, capital cost allowance (CCA), interest, and other business-related costs. |
| Tax Credits | Available for research and development (SR&ED), apprenticeship programs, and other government initiatives. |
Types of Corporate Tax Systems Canada
In Canada, the types of corporate tax systems are:
- Federal Corporate Tax: A national tax on corporate income.
- Provincial/Territorial Corporate Tax: Additional taxes set by each province or territory.
- Small Business Tax System: A reduced tax rate for qualifying small businesses.
- Integration Tax System: Designed to prevent double taxation of corporate profits and shareholder dividends.
Corporate Tax Rates in Canada
Canada’s corporate tax system involves two primary levels of taxation: federal and provincial/territorial. The rates depend on the size of the business and the type of income.
Corporate Tax Rate Federal
- General Corporate Rate: 15% on active business income.
- Small Business Deduction (SBD) Rate: 9% on the first $500,000 of active business income for Canadian-controlled private corporations (CCPCs).
Provincial/Territorial Corporate Tax Rates
Each province and territory applies its own Corporate taxes rate in addition to the federal rate. Rates vary by jurisdiction:
Province/Territory | General Rate | Small Business Rate |
Alberta | 8.0% | 2.0% |
British Columbia | 12.0% | 2.0% |
Ontario | 11.5% | 3.2% |
Quebec | 11.5% | 3.2% |
Manitoba | 12.0% | 0.0% |
Nova Scotia | 14.0% | 3.0% |
Corporate Tax Calculator Canada
Step | Details |
Determine Taxable Income | Calculate net income by subtracting deductible expenses from total revenue. |
Apply Federal Tax Rate | – CCPCs: 9% on the first $500,000 of active income. |
Add Provincial Rate | Apply the corporate tax rate of the province/territory where the business operates. |
Combine Rates | Add federal and provincial rates to get the total tax rate. |
Subtract Tax Credits | Apply applicable credits, such as SR&ED or apprenticeship tax credits, to reduce taxes. |
Ontario CCPC with $600,000 taxable income
Income Bracket | Federal Tax | Provincial Tax (Ontario) | Total |
First $500,000 | 9% = $45,000 | 3.2% = $16,000 | $61,000 |
Remaining $100,000 | 15% = $15,000 | 11.5% = $11,500 | $26,500 |
Total Tax Payable | $87,500 |
Tax Planning for Canadian Corporations
Effective tax planning is crucial for Canadian corporations to minimize liabilities and remain compliant with CRA regulations. Key strategies include:
- Leveraging Tax Credits: Maximize SR&ED credits, apprenticeship incentives, and regional tax incentives.
- Timing Income and Deductions: Defer income to a future year or accelerate deductible expenses.
- Income Splitting: Use salaries, dividends, or loans to distribute income among family members in lower tax brackets.
- Incorporation Benefits: Take advantage of lower corporate tax rates for small businesses.
- Invest in Growth: Reinvest profits into the business to reduce taxable income.
Frequently Asked Questions For Corporate Taxes
How much are corporate taxes in Canada?
Corporate tax rates in Canada vary but generally range from 9% for small businesses (on the first $500,000 of active income) to about 26.5% for larger corporations, depending on the province.
What is a corporate tax return in Canada?
A corporate tax return in Canada (T2) is a document that corporations file annually with the Canada Revenue Agency (CRA) to report their income, deductions, and taxes owed.
How much can a small business make before paying taxes in Canada?
In Canada, small businesses must pay taxes on all income, but the first $500,000 of active business income is taxed at the lower small business rate if they qualify for the Small Business Deduction.
How much is 100k after taxes in Ontario?
For 2025, an income of $100,000 in Ontario leaves approximately $74,000 to $76,000 after taxes, depending on specific deductions and credits.
How to reduce corporate taxes in Canada?
- Claim the Small Business Deduction.
- Take advantage of tax credits (e.g., SR&ED credit).
- Deduct eligible business expenses.
- Use income splitting strategies.
- Defer income through investments or tax deferral plans.
- Optimize their corporate structure.
How to calculate corporation tax?
- Determine taxable income: Total income minus allowable deductions.
- Apply the tax rate: Use the federal rate (15%) plus the provincial/territorial rate (varies).
- Deduct tax credits: Subtract eligible credits, like the Small Business Deduction (if applicable).
Taxable Income × (Federal + Provincial Rate) − Tax Credits.
