Intro to "Calculate your Corporate Income Tax in Canada for 2020 & 2021"
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The corporate tax applied to a Canadian controlled private corporation is limited to one or two flat rates, which is different from the personal income tax where the rates change gradually and grow along with the taxable bracket revenue. Also, the tax rates on Canadian Private Corporations are only applicable on the profit, after deducting from the revenue all the current expenses related to the normal activity of the company, the interest, the amortization and the depreciation.
The basic federal rate is 38%, but there is a deduction of 11.5% in 2011 and 13% from 2012 to 2016 for businesses generating profit from manufacturing and processing activities. This favourable treatment on the federal rate however has been eliminated later on, since an equivalent deduction is applicable to all other corporations, no matter what the sector of activity.
Additional deduction of 10% is applied on the federal rate if a business has to pay provincial or territorial tax. This is known as the provincial tax abatement. The federal or provincial abatement is created to leave room for the provincial taxes. This adjustment brings the federal rate to 16.5% for the year 2011 and 15% from the year 2012 to 2016, for all companies generating revenue in a Canadian province or territory.
Businesses established in Canada generating profit from activities outside the country will also have access to a federal rate reduction, but not to the provincial abatement. Their total rate is then limited to the federal one, which is 26.5% in 2011 and 25% from 2012 to 2016. The additional surtax has been abolished since January 2008.
Each province presents different rates. Some of the provinces or territories are still showing a lower rate for business generating profits from manufacturing and processing activities, but for most of them, there is no difference. If a company is making profit in more than one province, the regional rate is applicable on the portion of profit generated in that specific province.
On both federal and provincial level, there are two applicable rates on the corporate taxable income: the lower rate and the higher rate. The lower rate is a reduced rate reserved for company eligible to small business deduction (SBD), which is applicable on a first bracket of the taxable income. The first bracket is known as the business limit. On the federal level, the businessesss limit is established to 500,000$ and its lower rate to 11% in 2015 and 10.5% in 2016. However, on the provincial level, both business level and lower rate can differ from one province to another.
A business is eligible to SBD if its taxable capital of the previous year is lower than 15 million. The taxable capital is generally the shareholder's equity, retained earnings, loans and advances made to the corporation, minus certain investment made to other companies. The deposits are excluded in the case of financial institutions. The lower rate is applied on the minimum value between the business limit and the annual taxable income.
A business has access to the lower rate on the full business limit if the taxable capital is lower than 10 million, however if it is between 10 and 15 million, the business limit for both the provincial and the federal is reduced in a linear way. For example, if the business limit is 500,000$, it is reduced by 1$ for every bracket of 10$ over 10 million. The higher rate for its part is applicable on the rest of the taxable revenue.
Canada is a country with a relatively low corporate tax rate compared to other countries in the industrialized world. Use the following calculator to quickly estimate the taxes you will have to pay from commercial activities in one province.
Try the calculator Calculate your Corporate Income Tax in Canada for 2020 & 2021 >
