Canadian Sales Tax Rates for 2023
Canadian Sales Tax Rates for 2023 January 30, 2023 Question: What are the sales tax rates across Canada in 2023? Facts: The table below outlines
Home » News » Canadian Tax FAQs » What is the Small Business Deduction Annual Limit?
Tax Question:
What is the small business deduction annual limit for corporations?
Facts:
A corporation is eligible for a federal and provincial small business deduction on its taxable income in Canada up to a threshold of $500,000.
The small business deduction (SBD) limit allows a Canadian Controlled Private Corporations (CCPC) to pay low rate tax on its first $500,000 of active business income in Canada each year. This threshold is shared among all associated CCPC’s. In general, the SBD limit is based on the least of three amounts:
Up to $500,000 | Over $500,000 | |
Federal tax after abatement | 28.0% | 28.0% |
SBD | (17.0%) | |
Rate reduction | (13.0%) | |
Net federal tax | 11.0% | 15.0% |
BC tax | 2.5% | 11.0% |
Total tax | 13.5% | 26.0% |
For example, a company in British Columbia would pay only 13.5% of their active taxable income up to $500,000. If a company has income over this amount, then it would pay 26% in corporate tax on any amounts over the first $500,000.
In comparison, a self-employed individual would have to pay 45.8% tax on taxable income over $150,000. This provides some good tax planning opportunities of leaving money in the company until a later date, thereby deferring tax. Canada has one of the lowest corporate tax rates in the world. If you are considering opening a business, then you should consider incorporating your company in BC to take advantage of the low tax rates.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
Canadian Sales Tax Rates for 2023 January 30, 2023 Question: What are the sales tax rates across Canada in 2023? Facts: The table below outlines
How To File a GST/HST Return January 10, 2023 Question: How do you file a goods and services tax (GST) / harmonized sales tax (HST)
Shareholder Loans and Personal Expenses December 5, 2022 Question: What are Shareholder Loans and how are personal expenses recorded? Facts: The Shareholder Loans category may
Price and Valuation November 29, 2022 Question: When selling a business, how do you determine the actual price? Facts: Every business owner has contemplated when