The following is a brief summary of tax rates for small Canadian corporations. It is always recommended that owners consult with their trusted corporate and tax accountant to fully understand tax implications relating to their unique situation.
Tax planning should encompass all entities and individuals who are involved. The goal, typically, is to reduce total tax paid. Although some circumstances or timing may result in a shorter time horizon to be used, most owners and their families would benefit from a collaboration between their accountants and their financial advisors.
Different types of income are taxed at different rates, and the person being taxed will likely pay different rates of personal income tax depending on their unique situation. A comprehensive plan that includes the corporation, its principal owners, its shareholders (non-voting or preferred), spouses, children and other family members can legally decrease after-tax income.
What You Need to Know
Notwithstanding all of the minute details of tax laws, income tax rates are generally lower for a Canadian Controlled Private Corporation (CCPC). Corporations that qualify for the designation and the accompanying lower income tax rates must comply to all of the following conditions at the end of a tax year:
- it is a private corporation
- it is a corporation that was resident in Canada and was either incorporated in Canada or resident in Canada from June 18, 1971, to the end of the tax year
- it is not controlled directly or indirectly by one or more non-resident persons
- it is not controlled directly or indirectly by one or more public corporations (other than a prescribed venture capital corporation, as defined in Regulation 6700 of the Income Tax Regulations)
- it is not controlled by a Canadian resident corporation that lists its shares on a designated stock exchange outside of Canada
- it is not controlled directly or indirectly by any combination of persons described in the three previous conditions
- if all of its shares that are owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation with a class of shares listed on a designated stock exchange were owned by one person, that person would not own sufficient shares to control the corporation
- no class of its shares of capital stock is listed on a designated stock exchange
CPPCs in Canada are obligated to pay tax at both the federal and provincial level. Each province sets out its own tax rates for corporations, which can change throughout the year. Your tax professional, who completes your corporate tax return, is the best source for exact rates and their application against various types and amounts of active and passive income.
To initiate a discussion on financial planning to reduce your total tax the CCPC income tax rates for 2020 are as follows.
Source: canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-tax-rates.html
| Province/Territory | Active Business Income for CCPC under $500,000 | CCPC Income > $500,000 and Investment Income (passive) |
| Alberta | 2% | 8%1 |
| British Columbia | 2% | 12% |
| Manitoba | 0% | 12% |
| New Brunswick | 2.5% | 14% |
| Newfoundland and Labrador | 2.5% | 15% |
| Northwest Territories | 4% | 11.5% |
| Nova Scotia | 2.5% | 14% |
| Nunavut | 3% | 12% |
| Ontario | 3.2% | 11.5% |
| Prince Edward Island | 3% | 16% |
| Quebec | 5% | 11.5% |
| Saskatchewan | 2% | 12% |
| Yukon | 2% | 12% |
1. Alberta’s corporate income tax dropped from 10% to 8% following the passage of Bill 35, which received Royal Assent on December 9, 2020. docs.assembly.ab.ca/LADDAR_files/docs/bills/bill/legislature_30/session_2/20200225_bill-035.pdf
The Bottom Line
Although you will (and should) consult with an accountant for more in-depth guidance, I encourage you to get in touch with me if you have any questions or concerns. I will be happy to guide you in the right direction.
