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What is the Small Business Deduction Annual Limit?

February 18, 2014

Tax Question:

What is the small business deduction annual limit for corporations?


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:

  1. Active business income earned in Canada doesn’t include any income for the year that is property income (including interest, dividends and rental income)
  2. Taxable income doesn’t include any non-deductible expenses such as amortization and life insurance premiums
  3. Small business income threshold of $500,000.
 Up to $500,000Over $500,000
Federal tax after abatement28.0%28.0%
Rate reduction (13.0%)
Net federal tax11.0%15.0%
BC tax2.5%11.0%
Total tax13.5%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.

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