Corporate Tax Calculator

How Corporate Tax Works in Canada

Canadian corporations pay income tax at both the federal and provincial level. The combined rate depends on the type of corporation and the type of income earned.

Canadian-Controlled Private Corporations (CCPCs) benefit from the small business deduction, which reduces the federal tax rate from 15% to 9% on the first $500,000 of active business income. Combined with provincial small business rates, this results in total tax rates as low as 9% in some provinces and around 12% in Ontario.

The small business deduction can be reduced or eliminated in two situations. First, if your corporation’s taxable capital employed in Canada exceeds $10 million, the small business limit begins to phase out, reaching zero at $15 million. Second, if your prior year’s adjusted aggregate investment income exceeds $50,000, the limit is reduced by $5 for every $1 of excess passive income, reaching zero at $150,000.

Investment income earned by CCPCs is taxed at higher rates (approximately 50% combined) but a portion is refundable when taxable dividends are paid to shareholders. This refundable tax mechanism is designed to integrate corporate and personal taxes so that income earned through a corporation is taxed similarly to income earned directly.

Non-CCPCs, including public corporations and corporations controlled by non-residents, do not qualify for the small business deduction and pay the general corporate rate on all income.