Taxes
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.
What is a permanent establishment?
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:
- The employee or agent has general authority to contract for the corporation.
- The employee or agent regularly receives orders and fills them from stock owned by the corporation.
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):
- An insurance company has a permanent establishment wherever it is registered or licensed to do business.
- If a corporation with a permanent establishment in Canada owns land in a province, that land is a permanent establishment.
- A corporation has a permanent establishment if it uses substantial machinery or equipment in a particular place at any time during the tax year.
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.
What are federal and provincial tax liabilities for corporations?
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
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:
- Book publishing tax credit
- Farmers' food donation tax credit
- Film and television tax credit
- Foreign tax credits
- Interactive digital media tax credits
- Logging tax credit
- Mining exploration tax credit
Manitoba
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:
- Book publishing tax credit
- Community enterprise development tax credit
- Cooperative development tax credit
- Green energy equipment tax credit
- "Neighbourhoods Alive!" tax credit
- Odour-control tax credit
- Small business venture capital tax credit
New Brunswick
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:
- Foreign tax credit
- Research and development tax credit
- Small business investor tax credit
- New Brunswick Innovation Foundation Funds
- Agriculture Industry programs
- Aquaculture Industry programs
- Tourism Industry support
Newfoundland and Labrador
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:
- Interactive digital media tax credit
- Direct Equity tax credit
- Manufacturing and Processing tax credit
- Small business tax credit
- Political contributions tax credit
- Resort property investment tax credit
- Fisheries Loan Guarantee Program
Northwest Territories
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:
- Foreign tax credit
- Political contribution tax credit
- Aboriginal Capacity Building Program
- Business Development Project Fund (BDPF)
- Business Intelligence and Networking (SEED)
- Waste Reduction and Recycling Initiative Funding
- Business Term Loans
