Paying Too Much? A Clear Look at Corporate Tax Rates in Canada
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09 Apr 2025
Running a business in Canada means dealing with taxes, whether you like it or not. But the real question is, are you paying more than you need to? Many business owners don’t realize that corporate tax rates change yearly, and staying informed can mean the difference between overpaying and saving thousands.
If you’re trying to figure out the corporate tax rates in Canada, how they impact your business, and whether you qualify for lower rates, this guide breaks it all down.
What is Corporate Tax in Canada?
The corporate tax is the percentage of income your business pays to the government. The Canada corporate tax rate is split into two parts:- Federal corporate tax – This applies to all corporations across Canada.
- Provincial/territorial corporate tax – Varies depending on where your business operates.
Canada’s Latest Corporate Tax Rates
Federal Corporate Tax Rate
For most corporations, the federal tax rate is set at 15% after claiming the general tax reduction. However, if your business qualifies for the small business deduction rate, the tax rate is lower, making it an essential factor for small business owners to consider.Provincial and Territorial Corporate Tax Rates
Each province has its own corporate tax rates, which can significantly impact your overall tax bill. For example:- British Columbia: General corporate tax rate – 12%, small business tax rate – 2%
- Ontario: General corporate tax rate – 11.5%, small business tax rate – 3.2%
- Alberta: General corporate tax rate – 8%, small business tax rate – 2%
Corporate Investment Income and Capital Gains Tax
If your business earns investment income, it’s subject to a higher tax rate than active business income. The corporate capital gains tax rate in Canada is generally 50% of the gain added to taxable income, making tax planning essential for businesses with investment portfolios.How is Corporate Tax Calculated in Canada?
Corporate tax in Canada is calculated based on:- Total taxable income (after deductions and exemptions).
- Federal tax rate applied to the income.
- Provincial/territorial tax rate added on top.
- Credits and deductions subtracted to reduce the total amount payable.
Small Business Tax Rates & the $500,000 Small Business Limit
Do You Qualify for a Lower Tax Rate?
If your business is a Canadian-controlled private corporation (CCPC), you may qualify for the small business tax rate. This applies to active business income up to $500,000, which is taxed at a much lower rate than general corporate income. The small business deduction rate varies by province, but at the federal level, it’s 9% - significantly lower than the standard corporate tax rate.How to Reduce Corporate Tax in Canada
Paying corporate tax is unavoidable, but there are legal ways to reduce what you owe:- Maximize small business deductions – If eligible, ensure you’re using the small business tax rate.
- Income splitting – Consider paying dividends to family members in lower tax brackets.
- Tax-efficient investments – Be mindful of the corporate capital gains tax rate when making investment decisions.
- Expense planning – Timing expenses strategically can lower taxable income.
Filing on Time & Avoiding Penalties
Missing tax deadlines can lead to unnecessary penalties and interest charges. To stay compliant:- File your corporate tax return by the deadline (usually six months after the fiscal year-end).
- Pay any balance owing on time to avoid interest charges.
- Keep accurate records to support any deductions or credits you claim.
