Rate of Corporation Tax

When you are in charge of a business, tax time can be especially stressful. It is hard to figure out the corporate tax rate because rules can change every year and the corporate tax rate varies from province to province. This is true even for small businesses with few assets and low revenue.

This post goes over the specifics of Canada's corporate tax rate and how the different rates can affect your business. Learn everything you need to know about federal rates, CPCC rates, historical rates, and rates for investments and capital gains.

Note that you should always talk to a professional tax accountant to figure out the corporate tax rate for your business so that you can file your taxes and make plans. Get in touch with Numetrica to get personalized help with budgeting, filing taxes, and planning your business's taxes every year. All figures are relevant for the 2023 tax year.

What is Canada's corporate tax rate?

The tax rate for corporations changes based on their income, where they do business, the services they offer, and where their income comes from. The corporate tax rate, on the other hand, is the same for all corporations and small businesses in Canada, no matter what form it takes. In Canada, tax-exempt Crown corporations, Hutterite colonies, and registered charities are the only groups that do not have to do this.  Contact us today for a corporate tax service .

In Canada, there are two federal corporation tax rate levels, or dual tax rates.

The lower tax rate, sometimes referred to as the Canadian-controlled private company (CCPC) rate or the federal small business tax rate, is 9%. This corporate tax rate is subject to certain restrictions.

With a 10% federal tax abatement (Line 608) and a 13% general tax reduction, the general corporate federal tax rate, sometimes referred to as the higher tax rate, is 38%. This leaves a total net tax of 15% for general firms.

A corporation is required to pay the provincial corporate tax rate, which varies from province to province, in addition to the applicable federal corporate tax rate. Additionally, there are distinct corporate tax rates applied to dividends, capital gains, and investment income.

To help you better grasp how these corporate tax rates impact your company, let's focus on each one individually.

The federal corporate tax rate in Canada in 2023

Anything other than a CCPC is referred to as a "General Corporation." Public firms with Canadian residences and their subsidiaries, as well as Canadian-resident private enterprises under non-resident control, are commonly referred to as general corporations. These corporate tax rates are also applied by manufacturing and processing corporations, or M&P.

After deducting a 10% federal tax abatement and a 13% general tax reduction, the basic federal corporate income tax rate is 38%. This leaves general corporations with an effective corporate tax rate of 15%.

Income from CCPCs that exceeds the small business limit threshold is eligible for the standard corporate tax rate, in addition to standard M&P corporations and General corporations.

The following are not the only items to which the general rate reduction of 13% applies:

1. The initial $500 000 in active business income that CCPCs earn
2. Income from investments of CCPCs
3. Income from some other businesses, like mutual fund companies, mortgage investment companies, and investment companies

See the following section's Small Business (CCPC) Tax Rate 2023 chart for the CCPC corporate tax rate.

Corporate Tax Rate for Canadian Small Businesses (2023)

In Canada, small enterprises may be eligible for varying tax rates based on their revenue and organizational structure.

By utilizing the Small Business Deduction (SBD), Canadian-controlled private corporations (CCPCs) can lower their corporate tax rate on their income from operating businesses. The SBD is predicated on small business limits, which are presently established in the majority of provinces and territories at $500,000. The SBD lowers the Part I tax that a business would otherwise be required to pay.

The SBD is equivalent to the lesser of the following amounts on a corporation tax return, divided by a specific percentage known as the SBD rate:

1. The income from active business done in Canada (line 400)
2. Taxed earnings (line 405)
3. The business limit (line 410), one of the options below:
   1. This is the amount on line 427 for tax years beginning before 2019. It is the reduced business limit on line 425 minus the amount of the business limit you set under subsection 125(3.2).
   2. The amount on line 428 is the reduced business limit from line 426 minus the amount you set as your business limit under subsection 125(3.2). This amount applies to tax years beginning after 2018.

You must base your computation on the total number of days in the year that each rate is applicable if the rate changes during the tax year as a result of your company's revenue exceeding or falling short of the SBD level.

In addition to offering advantages and incentives to bigger firms, the small business deduction is designed to assist SMEs, start-ups, and small businesses in meeting their tax requirements.

The small business corporate tax rates that apply to a company claiming the small business deduction are listed below for both the federal and provincial governments. The federal effective company tax rate is 9% for Canadian-Controlled Private Corporations that are qualified to use the Small Business Deduction.

Capital Gains Tax Rate for Businesses in Canada

Any profit realized from the sale of capital or passive assets, such as stocks, shares, businesses, goodwill, and land, is referred to as a capital gain. A corporation's declared taxable income must include capital gains. All of a corporation's capital gain, however, does not have to be included in income; only half of it (50%) must. This is referred to as the inclusion rate for capital gains.

The corporate tax rate on capital gains is equal to 50% of the tax rate on investment earnings as only 50% of a capital gain is taxable. Given this high tax rate, every company that could have a capital gain in the future ought to consult a tax expert to fully comprehend the tax ramifications of any sales and gains.

Additionally, corporations can utilize capital losses to offset gains in capital.

Canada's Corporate Investment Income Tax Rate

In Canada, companies can get investment income in a variety of ways. Income from properties, such as rentals, interest, dividends, capital gains, and royalties, makes up the majority of investment income. Usually referred to as passive income, investment income is unrelated to a company's main business revenue. Investment income may account for a sizeable amount of a company's total revenue, depending on the size of the organization and its operations.

New regulations pertaining to the company tax rate on investment income went into force in January 2019. The existing $50,000 annual threshold for passive investment income is reached, at which point the tax rate on your corporation's ordinary business income rises. The goal of this new law is to redirect corporate profits toward expanding the business's operations rather than increasing passive income. Thus, CPCCs seeking to maintain a low corporate income tax rate are disinclined to increase the revenue from their passive investments and are dissuaded from employing particular corporate structures in order to generate substantial investment income.

The following are Canada's business investment income tax rates:

Business Tax Rates by Province (2023)

In general, corporate income tax rates in provinces and territories are twofold: one greater rate than the other for various categories of corporations.

Based on the business limit, the lower rate is applicable to the income that qualifies for the federal small business deduction (SBD). As previously mentioned, some provinces choose to adopt the federal business cap of $500,000. Others set their own limits. All other income is subject to the higher rate.

With the exception of Quebec and Alberta, which lack agreements with the Canada Revenue Agency (CRA) for the collection of company taxes, all provinces and territories are subject to these rates.

Ontario's business tax rate

The standard tax rate applicable to corporations in Ontario is 11.5%. The Ontario small business deduction brings this rate down to 3.2% for corporations that satisfy the standards and qualify for the reduction. In Ontario, a lower rate is available to companies who have an annual revenue that is less than the company limit of $500 000.

Ontario is one of the provinces that does away with the small business deduction for Canadian firms that had taxable capital employed in excess of $10 million in the year prior to the current one and were subject to taxation in that province. When the amount of taxable capital in the preceding tax year was $15 million or above, the taxable capital is completely removed. This is referred to as a "taxable capital business limit reduction" in some circles.

Because it has one of the lowest rates of basic corporation taxation in all of Canada, Ontario is a good location for a company to establish its operations because of its low rate.

Canada's Corporate Tax Rate Calculator

In order to determine your company's tax rate, you will need to be familiar with the ins and outs of applicable local, state, and federal regulations, as well as your company's financial situation. Many of the corporation tax rate calculators that are available for purchase on the market are unable to produce accurate predictions and can add to the existing level of confusion.

The easiest option to ensure complete accuracy when determining your company tax rate is to hire a seasoned CPA (Chartered Professional Accountant) to handle the calculation of your corporate income taxes. Even a single oversight, such as an incorrect computation, forgotten paperwork, or other inaccuracy, might result in significant financial penalties. When it comes to calculating, filing, and preparing your corporation's income tax, you should always speak with a corporate tax accountant.

 History of Canada's Business Tax Rates

In Canada, both the federal government and the provincial governments have the power to adjust the tax rate that applies to corporations on an annual basis. In spite of the fact that it could change by as little as 0.5% per year, it occasionally changes by as much as 3%. Even though the corporate cap of $500,000 has been the standard in Canada for more than 10 years, certain provinces, notably Saskatchewan and Manitoba, have recently amended it.

In 2008, the corporate tax rate was higher than it had been in any of the preceding ten years for both traditional businesses and controlled foreign corporations (CCPCs). On the other hand, the tax rates that will be in place in 2023 will be the lowest federal corporate tax rates for ordinary firms and CCPCs. These rates have been in effect since 2021.

Knowing Canada's historical corporate tax rate is one approach to ensure that the future tax preparation for your firm will be thorough and analytical. If you are aware of Canada's historical corporate tax rate, you may take this step.

Rate of Corporate Tax in Canada vs. USA

Comparing the corporate tax rates in the United States and Canada is, in many respects, like comparing apples and oranges. Neither country's system is exactly the same as the other. In practical terms, there are not a lot of significant disparities between the tax rates of the various countries.

There are two elements to the tax rates that apply to corporations in Canada: the rate applied by the province, which can be anywhere from 0% to 16% depending on the classification, and the rate applied by the federal government, which is 15%. The majority of Canada's corporations pay effective tax rates that range from 26.5 percent all the way up to 31 percent.

However, the tax rates for corporations in the United States include a number of other components as well. To begin, the top rate for the federal tax on corporations is 21%. As a direct result of this, the range of tax rates that are imposed by state and municipal governments is from 0% to 12%. Last but not least, there are additional corporate tax rates that fluctuate widely between states and regions. These rates apply to corporations. When calculating its federal taxable income, an American company is allowed to deduct its expenses related to state and local income taxes. This results in a net effective rate that is normally somewhere about 27%.

In general, the tax rates on corporations in the United States of America and Canada are fairly comparable to one another. If your company does business in both countries, you will need to determine the corporate tax rate in each country using an entirely distinct set of methods. This is necessary since the rates are different.

Get help with your business tax issues.

The process of managing business tax rates, filing returns, making financial plans, and making payments can be difficult. The precise tax rate that applies to your business is based on a number of factors, including its income, location, various sources of revenue, dividend policy, shareholder makeup, and a number of other factors. Every company has its own individual approach to paying taxes as a corporation.

At Numetrica, we are dedicated to making the process of calculating your corporation's tax rate as stress-free as possible for our clients. We provide assistance to enterprises of all sizes in Canada, as well as to firms located in other countries that have operations in our country, so that they can successfully manage these complex requirements.

In order to maximize the amount of money your business makes, you should consult with tax accountants who are both qualified and experienced whenever it is practicable to do so. Find out how we can help you carefully prepare your tax obligations and make sound decisions regarding your finances by contacting us today.

Please get in touch with us as soon as possible for a no-cost consultation.