Corporate income tax in Canada follows a dual rate system. That means if your corporate income falls below a certain level, you pay less income tax. Read on for a basic overview of taxable corporate income in Canada.
If your corporation isn't based in Quebec or Alberta, but you have a permanent establishment there, you will have to file separately. A permanent establishment can be an office, branch, oil well, farm, timberland, workshop, or other forms of activity. If an employee, broker or agent does business for you in a certain place, it's a permanent establishment if either of the following is true:
If you work with a commission agent, broker, or similar agent, or you have an office you use just to buy merchandise, it is not a permanent establishment. Neither a subsidiary controlled corporation, nor a subsidiary controlled corporation engaged in trade or business, is considered a permanent establishment. If you have no particular head office, your permanent establishment is the address listed on your incorporation documents. Here are some more details on how the Income Tax Regulations define permanent establishment, in Regulation 400(2):
If your business is incorporated, you need to fill in the T2 income tax return. Check out the CRA document T4012 T2 Corporation - Income Tax Guide 2017 for instructions. The CRA administers all provincial and territorial corporate income tax, except for Quebec and Alberta.
Corporations pay tax at both the federal and the provincial/territorial levels. Each province and territory has its own rules for corporate income tax. If you have a permanent establishment in more than one province or territory, you need to fill out Schedule 5. If you claim provincial or territorial credits or rebates, or pay taxes other than income tax, again, fill out Schedule 5. Here is some information about provincial and territorial corporate tax rates, except Quebec and Alberta. To file corporate income tax in Quebec, go to the provincial website. Information is in French only. For Alberta, go to their provincial website.
British Columbia corporate tax rates are based on your overall income. The general tax rate for 2018 is 12.0%, and the lower rate is 2.0%. Canadian-controlled private corporations (CCPCs) with active business income can use the lower rate. A corporation with active business income is generally neither a specified investment business nor a personal service business. You pay the lower tax rate on your small business if your corporate earned income is less than $500,000. You pay the general rate if your corporate earned income exceeds $500,000. Try the federal corporate tax calculation tool Schedule 427, British Columbia Corporation Tax Calculation. You don't have to send it in with your return. Enter the tax amount on line 240 of Schedule 5. Find your provincial forms on the British Columbia site. Here are some of British Columbia's tax credits:
In Manitoba, small businesses pay no corporate income tax at all. The general corporate income tax rate is 12.0%. As of 2019, the small business limit is $500,000. You can use Schedule 383, Manitoba Corporation Tax Calculation to figure out your basic tax amount before credits. Enter the amount on line 230 of your Schedule 5. Find your provincial forms on the Manitoba site. Manitoba offers tax credits such as:
New Brunswick corporate income tax rates are 2.5% for small businesses. Larger corporations pay a tax rate of 14%. The small business limit is $500,000. Use Schedule 366, New Brunswick Corporation Tax Calculation to find your basic tax amount for Line 255 of Schedule 5. Find your provincial forms on the New Brunswick site. Here are some of New Brunswick's funding programs and tax credits:
In Newfoundland and Labrador, the general corporate income tax (CIT) rate is 15%. The rate for Manufacturing and Processing Profits is also 15%. The small business rate is 3%. Manufacturing and Processing Profits has its own rate since its tax credit was eliminated in 2016. The small business limit is $500,000. Find your basic tax amount with Schedule 307, Newfoundland and Labrador Corporation Tax Calculation. Enter your amount on Schedule 5 at line 200 and/or line 205. Get your provincial forms at the Newfoundland and Labrador site. Here is a partial list of Newfoundland and Labrador funding programs and tax credits:
In the Northwest Territories, the general rate is 11.5% and the small business rate is 4%. The small business rate applies to CCPCs with active business income under $500,000. Use Schedule 461, Northwest Territories Corporation Tax Calculation to figure out your basic tax amount. Use line 250 of Schedule 5. Both federal and territorial corporate income taxes are paid through the federal return. You can apply for two types of tax credit in the Northwest Territories as well as funding programs, including:
The general corporate income tax rate in Nova Scotia is 16%. The small business rate for CCPCs is 3%. The small business limit is $500,000. Find your basic tax amount with Schedule 346, Nova Scotia Corporation Tax Calculation. Enter the amount on line 215 and/or line 220 of Schedule 5. Federal and provincial taxes are collected through the federal return. Look for tax credits in Nova Scotia including:
The general corporate income tax rate in Nunavut is 12%. The small business rate is 4%. Use Schedule 481, Nunavut Corporation Tax Calculation to find your basic tax amount. Enter the amount on line 260 of Schedule 5. Check the CRA for information about territorial corporate income tax. Check out Nunavut tax credits and funding programs such as:
The Ontario corporate income tax basic rate is 11.5%. Small businesses can apply a deduction of 8% to reduce their income tax rate to 3.5%. CCPCs earning more than $10 million will see their deduction phased out. You lose it once your corporate income hits $15 million. Use Schedule 500, Ontario Corporation Tax Calculation to figure out your basic tax amount. Enter it on line 270 of Schedule 5. Ontario corporations can use the federal T2 form for the following:
Look into Ontario tax credits such as:
The lower rate for corporation income tax in Prince Edward Island is 3.5%. The higher rate is 16%. The small business limit is $500,000. Figure out your tax amount on Schedule 322, Prince Edward Island Corporation Tax Calculation. Use line 210 of Schedule 5. Prince Edward Island tax credits include:
See Innovation PEI for business funding programs.
In Saskatchewan, the small business corporate income tax rate is 2%. The general rate is 12%. The small business limit is $600,000. All corporations based in Saskatchewan have to pay federal and provincial income tax, but some are tax-exempt. These include Crown corporations, Hutterite colonies and registered charities. Corporations engaged in manufacturing and processing (M&P) qualify for a reduced tax rate. The reduction can be up to two points, depending on how much activity takes place in Saskatchewan. Use Schedule 411, Saskatchewan Corporation Tax Calculation, help figure out your basic tax amount. Use line 235 of Schedule 5. Check out Saskatchewan tax credits and tax incentives such as:
In the Yukon, the lower corporate income tax rate for small businesses is 2%. Businesses earning corporate income below $500,000 qualify. The general rate is 12%. Use Schedule 443, Yukon Corporation Tax Calculation to figure out your tax before credits. Use line 245 of Schedule 5. There are Yukon tax credits, subsidies and funding programs such as:
Your best bet for figuring out your taxable corporate income is the CRA tool for your province or territory. You should be clear on your corporate earnings to determine your income tax bracket. Do you qualify for the lower, small business rate in your region? Make sure your financial statements confirm that your corporate income falls within the limit to claim the standard deduction. Deductions for corporations vary across the country and are subject to frequent change. Stick with reliable sources when it comes to identifying which deductions your corporation might claim. Check your local government website frequently. Whenever possible, seek the advice of a finance, legal or tax professional.