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Originally Posted by trailraat
Does this take into account all of the income earners with personal corporations that pay themselves relatively low incomes?
I certainly understand why people use corporations to avoid extra tax because of how insane our tax rates are, but I am curious about how that factors into these statistics.
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Just saw this post. Paying yourself through a corporation is only partially effective in mitigating tax. Long and short, highest earners are getting heavily taxed no matter how they earn the money.
https://wtcca.com/corporate-tax-rate...tes-in-canada/
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What is the Corporate Tax Rate in Canada?
Based on the Income Tax Act, the Federal corporate tax rate starts at 38%. This rate has an offsetting 10% Federal income tax abatement and an additional 13% general tax reduction. All of this places the net corporate tax rate at 15%.
This tax rate applies to general corporations, which are corporations that are not Canadian-controlled private corporations (CCPCs). Typically, these corporations are public companies with resident subsidiaries in Canada and private companies controlled by foreigners or non-residents.
Several factors determine how much corporate tax your business must pay in Canada. The corporate tax rate in Canada depends on which province your business is located in, the size of the company (how much revenue is earned), and income sources, that is, whether or not the business earns active income or passive income.
Note that active income is income from your ordinary business activities, excluding amounts generated from passive income, a specified investment business, or a personal services business. Investment income is income generated from interest, dividends, rent, and capital gains.
Here is a breakdown of the general corporate income tax rate by province:
2023 General Corporate Tax Rates
Federal 15%
Ontario 11.50%
British Columbia 12%
Alberta 8%
Manitoba 12%
New Brunswick 14%
Prince Edward Island 16%
Nova Scotia 14%
Newfoundland & Labrador 15%
Nunavut 12%
Northwest Territories 11.50%
Yukon 12%
Saskatchewan 12%
Quebec 11.50%
What is the Small Business Tax Rate in Canada?
Small businesses that are located in Canada pay different tax rates based on how the business is set up and how much revenue the business earns.
A Canadian small business is defined as having less than $500,000 in annual taxable income.
Canadian-controlled private corporations (CCPCs) can use the Federal small business deduction (SBD) to reduce the corporate income tax rate on the company’s active business income with all primarily activities being carried on in Canada. A CCPC is a corporation owned by either Canadian residents or a company controlled by Canadian residents. To be defined as a CCPC, your corporation must be incorporated in Canada, a private corporation, and it is not publicly traded on any stock exchange.
The Federal small business deduction was designed with small businesses in mind to reduce the overall corporate income tax liability. In most provinces and territories, the maximum limit for preferential tax treatment is $500,000 in taxable income. This is also known as the small business limit for the corporation.
The preferential tax treatment of small business deduction helps small to medium enterprises, startups, and other smaller companies fulfill their tax obligations and provide valuable incentives to bigger, larger corporations.
The following chart shows the Federal and each province’s small business tax rates applicable to businesses claiming the SBD small business deduction. For CCPCs eligible for preferential tax treatment to claim the SBD small business deduction, the Federal corporate tax rate is 9%.
Business Limit Threshold 2023 Small Business Tax Rate (CCPC)
Federal $500,000 9%
Ontario $500,000 3.20%
British Columbia $500,000 2%
Alberta $500,000 2%
Manitoba $500,000 0%
New Brunswick $500,000 2.50%
Prince Edward Island $500,000 1%
Nova Scotia $500,000 2.50%
Newfoundland & Labrador $500,000 3%
Nunavut $500,000 3%
Northwest Territories $500,000 2%
Yukon $500,000 0%
Saskatchewan $600,000 0%
Quebec $500,000 3.20%
Combined Corporate Tax Rates in Canada
Not all provinces have the same corporate income tax rate. In some instances, there is a dual tax rate.
The dual tax rate consists of a lower rate and a higher rate. The lower rate is applied to income eligible for the Federal small business deduction (SBD), which is the income that meets or falls below the established Federal business limit threshold. The higher tax rate applies to all other income.
Here is an example of what this might look like:
ABC Company has a permanent business in Ontario and has a taxable income of $600,000. All income is earned from ordinary business activities carried on in Canada.
The small business deduction tax rate in Ontario is 3.2% and 9% at the Federal level, providing a combined total of 12.2%.
The General Corporate Tax Rate in Ontario is 11.5% and 15% at the Federal level, providing a combined total of 26.5%.
ABC Company would calculate corporate income taxes on the first $500,000 income (i.e. small business limit) using the Small Business Tax Rate of 12.2%. This equals $61,000. ABC Company would then calculate the corporate income taxes on the remaining $100,000 income using the General Corporate Tax Rate of 26.5%. This equals $26,500. The combined corporate income taxes payable are $61,000 plus $26,500 for a total of $87,500.
The following chart shows each province’s combined Federal and provincial corporate income tax rates on income eligible for Small Business Tax Rate and income subject to General Corporate Tax Rate.
Province/Territory 2023 Small Business Tax Rate (Lower Rate) 2023 General Corporate Tax Rate (Higher Rate)
Ontario 12.20% 26.50%
British Columbia 11% 27%
Alberta 11% 23%
Manitoba 9% 27%
New Brunswick 11.50% 29%
Prince Edward Island 10% 31%
Nova Scotia 11.50% 29%
Newfoundland & Labrador 12% 30%
Nunavut 12% 27%
Northwest Territories 11.50% 26.50%
Yukon 9% 27%
Saskatchewan 9% 27%
Quebec 12.20% 26.50%
What is the Corporate Investment Income Tax Rate?
In Canada, investment income is income generated primarily from investment assets, including interest, dividends, rentals, and capital gains. It is often considered passive income as it is not directly tied to or related to the corporation’s primary business income.
In 2019, the Canada Revenue Agency implemented changes to the way corporate investment income is taxed. These new rules dictate that if passive income crosses a $50,000 threshold in the tax year, the corporate tax rate on the corporation’s active business income will increase.
These rules were implemented to encourage businesses to reinvest passive income back into the business rather than let it sit and continue to grow as passive income. CCPCs, under this tax structure, don’t have the incentive to increase passive income if they wish to keep their tax rate at a lower level. In fact, the reduced Small Business Tax Rate is completely phased out if passive income exceeds $150,000. Historically, CCPCs may have invested this income in things like stocks and bonds to preserve assets and increase overall income.
CCPCs are subject to a Federal investment income tax rate of 28% (net of 10% Federal income tax abatement) plus a refundable 10⅔% for a total Federal income tax rate of 38⅔% or 38.70%.
Here is a breakdown of the Corporate Investment Tax Rates in Canada:
2023 Investment Tax Rate
Federal 38.70%
Ontario 11.50%
British Columbia 12%
Alberta 8%
Manitoba 12%
New Brunswick 14%
Prince Edward Island 16%
Nova Scotia 14%
Newfoundland & Labrador 15%
Nunavut 12%
Northwest Territories 11.50%
Yukon 12%
Quebec 11.50%
Saskatchewan 12%
Underused Housing Tax (UHT) Rate
For Canadian residential properties owned on or after December 31, 2022, a 1% tax on the value of the property may be levied if it is considered vacant or underused. You are required to file an Underused Housing Tax return if you are not an excluded owner, and you are required to pay the 1% tax if you do not qualify under one of the four categories of exemptions.
What is the Capital Gains Corporate Tax Rate?
A capital gain is earned through the sale of a passive investment asset. Passive investment assets can include shares of businesses, publicly traded stocks, goodwill, land, and other real properties. Capital gains must be declared as part of a corporation’s income.
The good news, however, is that due to the capital gains inclusion rate, only half or 50% of a corporation’s capital gains need to be included in declared income.
Since only 50% of capital gain is subject to taxation, the corporate tax rate on capital gains is equal to 50% of the Investment Income Tax Rate.
If the assets held by the corporation have appreciated substantially in value, this may result in hefty tax liability at the time of sale. Any business with the potential for capital gains should speak with a professional corporate tax accountant to fully understand the implications and how these gains will be taxed.
After capital gains are reported, the business can take advantage of the Capital Dividend Account (CDA) to distribute the non-taxable portion of the capital gain. This is because only 50% of the capital gain is subject to taxation, and the other 50% can be distributed using the CDA on a tax-free basis.
Note that if the sale of assets results in a capital loss, it can be carried back 3 years to offset prior year capital gains and carried forward 20 years on any future capital gains. Capital losses cannot be used to offset ordinary active business income earned.
Here is a look at the Capital Gains Corporate Tax Rates in Canada.
2023 Capital Gains Corporate Tax Rate
Federal 19.35%
Ontario 5.75%
British Columbia 6%
Alberta 4%
Manitoba 6%
New Brunswick 7%
Prince Edward Island 8%
Nova Scotia 5.75%
Newfoundland & Labrador 7.50%
Nunavut 6%
Northwest Territories 7%
Yukon 6%
Saskatchewan 6%
Quebec 5.75%
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