Canada Corporate Tax Rate Guide (2023, updated) | Small Business, Investment, Capital Gains (2024)

Updated on 30 July 2023

When you run a corporation, tax time comes with a special set of headaches and difficulties. The corporate tax rate varies from province to province and regulations can change on a yearly basis, making it difficult to calculate the corporate tax rate, even for a small business with few assets and a lower revenue.

In this post, we take a look at the details of the Canada corporate tax rate and how the different rates affect your business. Get everything you need to know about federal rates, CPCC tax rates, historical rates, and tax rates relating to capital gains and investments.

Please note, you should always consult directly with an experienced tax accountant to calculate your business’ corporate tax rate for filing and planning purposes. Contact the team at Accountor CPA for personalized information about budgeting, tax filing, and tax planning for your corporate taxes each year. All figures are relevant for the 2023 tax year.

What Is Corporate Tax Rate in Canada?

The corporate tax rate differs depending on a corporation’s revenue, operating location, services, and income sources. However, the corporate tax rate applies in these different forms to all corporations and small businesses operating in Canada. The only entities that are exempt from this obligation in Canada are tax-exempt Crown corporations, Hutterite colonies, and registered charities.

There are two levels of federal corporate tax rates in Canada, also known as the dual tax rate.

The federal small business tax rate, also known as the lower tax rate or Canadian-controlled private corporation (CCPC) rate, is 9%. You must satisfy certain requirements to receive this corporate tax rate.

The General Corporate Federal Tax rate, also known as the higher tax rate, is 38%, with a 10% federal tax abatement (Line 608) and a 13% general tax reduction, leaving a total of 15% net tax for general corporations.

In addition to the applicable federal corporate tax rate, a corporation must also pay the provincial corporate tax rate which differs from province to province. There are also specific corporate tax rates for investment income, capital gains, and dividends.

Let’s narrow it down and look at these corporate tax rates one by one to give you a better understanding of how they affect your corporation.

Canada Federal Corporate Tax Rate (2023)

The term General Corporation refers to a corporation other than a CCPC. A general corporation typically includes public companies and their subsidiaries that are resident in Canada, and Canadian-resident private companies that are controlled by non-residents. Manufacturing and processing corporations, known as M&P, also use these corporate tax rates.

The federal corporate income tax basic rate is 38%, with a 10% federal tax abatement and a 13% general tax reduction, leaving a 15% effective corporate tax rate for general corporations.

In addition to General Corporations and M&P corporations, CCPC income that goes above the small business limit threshold is eligible for the general corporate tax rate.

The general rate reduction of 13% does not apply only to the following:

1. The first $500 000 CAD of active business income earned by CCPCs
2. Investment income of CCPCs
3. Income from certain other corporations, including mutual fund corporations, mortgage investment corporations, and investment corporations

For CCPC corporate tax rate, see Small Business (CCPC) Tax Rate 2023 chart in the next section.

Corporate Tax Rate for Small Business Canada (2023)

Small businesses in Canada can qualify for different tax rates depending on their structure and revenue.

Canadian-controlled private corporations (CCPCs) reduce their corporate tax rate on their active business income by using the Small Business Deduction (SBD). The SBD is based on small business limits which are currently set at $500 000 CAD in most provinces and territories. The SBD reduces Part I tax that a corporation would otherwise have to pay.

The SBD is equal to a certain percentage (the SBD rate) of whichever of the following amounts on a corporate tax return is less:

1. the income from active business carried on in Canada (line 400)
2. the taxable income (line 405)
3. the business limit (line 410)
either one of the following:
1. for tax years starting before 2019, the amount on line 427, which is the reduced business limit on line 425 less the amount of the business limit you assigned under subsection 125(3.2)
2. for tax years starting after 2018, the amount on line 428, which is the reduced business limit on line 426 less the amount of the business limit you assigned under subsection 125(3.2)

If the rate changes during the tax year due to your company’s revenue going above or below the SBD threshold, you have to base your calculation on the number of days in the year that each rate is in effect.

The small business deduction is in place to help SMEs, start ups, and small businesses meet their tax obligations, while also providing benefits and incentives to larger corporations.

Below are the federal and provincial small business corporate tax rates that apply to a business claiming the small business deduction. For Canadian-Controlled Private Corporations eligible to claim the Small Business Deduction, the federal effective corporate tax rate is 9%.

Capital Gains Corporate Tax Rate Canada

A capital gain refers to any profit made by selling capital or passive assets, including businesses, stocks, shares, goodwill, and land. Capital gains must be included in the declared taxable income of a corporation. However, only half (50%) of a corporation’s capital gain needs to be included in the income. This is known as the capital gains inclusion rate.

Because only 50% of a capital gain is taxable, the corporate tax rate on capital gains is 50% of the tax rate on investment earnings. This is a hefty tax rate, and any corporation that may have a capital gain in the future should work with a tax accountant to understand the tax implications of all sales and gains.

Corporations can also use capital losses to outweigh capital gains.

Corporate Investment Income Tax Rate Canada

Investment income in Canada can take many forms for corporations. Primarily, investment income consists of income from properties, including rentals, interest, dividends, capital gains, and royalties. Investment income is not directly related to a corporation’s active main business income and is typically known as passive income. Depending on the size of the corporation and its activities, investment income can be a significant portion of a firm’s overall income.

In January 2019, new rules came into effect regarding the corporate tax rate on investment income. If your passive investment income passes the current threshold of $50 000 CAD in a year, the tax rate on your corporation’s ordinary business income increases. The intention with this new legislation is that corporate earnings will be invested into the business itself, and not to growing passive income. Now, CPCCs who want to keep their corporate income tax rate low do not have an incentive to grow their passive investment earnings and are discouraged from using specific corporate structures to earn significant investment income.

The corporate investment income tax rates in Canada are as follows:

Corporate Tax Rates by Province (2023)

Generally, provinces and territories have dual rates of corporate income tax - a higher rate and a lower rate - for different types of corporations.

The lower rate applies to the income eligible for the federal small business deduction (SBD) based on the business limit. Some provinces choose the federal business limit of $500 000 CAD, while others establish their own, as noted previously. The higher rate applies to all other income.

These rates apply to all provinces and territories except Quebec and Alberta, as these provinces do not have corporation tax collection agreements with the CRA (Canada Revenue Agency).

Corporate Tax Rate in Ontario

The basic corporate tax rate in Ontario is 11.5%. The Ontario small business deduction reduces this rate to the lower rate of 3.2% for corporations that qualify. The business limit for Ontario is $500 000 CAD and any business with a revenue below this qualifies for this lower rate.

Ontario is one of the provinces that phases out the small business deduction for CCPCs with taxable capital employed in Canada of more than $10 million CAD in the previous tax year. It is completely eliminated when the taxable capital is $15 million CAD or more in the past tax year. This is known as the taxable capital business limit reduction.

Ontario has one of the lowest basic corporate tax rates in Canada, making it an appealing province to base a corporation’s operations from.

Corporate Tax Rate Calculator Canada

Calculating your corporate tax rate requires navigating provincial and federal regulations and having a deep understanding of your corporation’s finances. Many commercially available corporate tax rate calculators are not able to provide accurate estimates and can cause even more confusion.

Working with an experienced CPA (Chartered Professional Accountant) for calculating your corporate income taxes is the best way to ensure total accuracy for your corporate tax rate calculating. One miscalculation, missed document, or error can lead to severe penalties that impact your bottom line. Always consult with a corporate tax accountant for calculating, filing, and planning your corporate income tax.

Canada Corporate Tax Rate History

The corporate tax rate in Canada is subject to change each year depending on federal and provincial legislation. While this change may be by as low as 0.5%, sometimes it can shift by upwards of 3% year on year. The business limit of $500 000 CAD has been standard in Canada for over a decade, but Manitoba and Saskatchewan are two examples of provinces that have recently made adjustments to it.

Within the last decade, 2008 saw the highest corporate tax rate for both general corporations and CCPCs. On the other hand, the lowest corporate tax rates federally for general corporations and CCPCs are the 2023 rates, which have been in place since 2021.

Knowing the historical corporate tax rate in Canada is one part of ensuring comprehensive and analytical tax planning for your corporation’s future.

Canada Corporate Tax Rate vs USA

Comparing the Canada corporate tax rate to the USA is like comparing apples to oranges in many aspects. When it comes down to it, the tax rates between countries are very similar.

Canada’s corporate tax rates consist of two portions: the federal (15%) and the provincial (ranging from 0% to 16% depending on the classification). Generally, most Canadian corporations can expect to pay a corporate tax rate between 26.5% and 31%.

On the other hand, the American corporate tax rates consist of more portions. First, the federal corporate tax rate is 21%. Then, the state and local government tax rates range between 0% and 12%. Lastly, there are other corporate taxes rates that vary from state to state and locality to locality. An American corporation may deduct its state and local income tax expense when calculating its federal taxable income, generally resulting in a net effective rate of approximately 27%.

Generally speaking, the Canada corporate tax rate vs USA is very similar. If your corporation operates in both countries, you must take very different steps in calculating your corporate tax rate between countries.

Get Help Managing Your Corporate Taxes

Managing your corporate tax rate, filing, planning, and paying can seem difficult to navigate. Your specific company tax rate depends on a number of factors, including its revenue, where it operates, its sources of revenue, its dividends paid, its shareholder structure, and more. No two companies have the same corporate tax structure.

At Accountor CPA, we are dedicated to alleviating the stress that comes with predicting your corporate tax rate. We work with corporations of all sizes across Canada and even those based abroad with operations in Canada to navigate these complex regulations successfully.

To make the most of your corporate revenue, you should always work with qualified and experienced tax accounting professionals. Learn how we can help you make smart financial decisions and plan your payable tax thoroughly.

Contact us for a free consultation today.