Small Business Tax Rates in Canada

As a small business owner, you must pay federal and provincial or territorial taxes on your net profits. A business income of over $30,000 requires an additional remittance of GST/HST. If you have employees, you need to withhold payroll taxes, CPP, and EI contributions from their paychecks and remit them to the CRA on time.

Small business deduction (SBD)

Incorporating your small business can help you benefit from the small business deduction (SBD), provided your small business qualifies as a Canadian-controlled private corporation (CCPC). A CCPC is generally a private company controlled by someone residing in Canada and isn’t listed on a stock exchange. 

The federal SBD limit is $500,000 per fiscal year. If your fiscal year is for less than 365 days, prorate the limit based on the number of days. To be eligible to receive SBD, your small business must meet the following criteria:

• Make an active business income of less than $500,000 in a fiscal year
• Make a passive investment income of less than $50,000
• Employ taxable capital of less than $10 million

In addition, you can reduce your taxable income by applying the relevant small business deductions covered in our article.

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Non-incorporated business

Non-incorporated small business owners pay income tax using individual tax rates. You’re taxed at federal, provincial, or territorial levels and must withhold CPP contributions from your income. Making EI contributions is optional; however, you can opt for them to secure your financial situation. The GST/HST rules generally remain the same for both incorporated and non-incorporated small businesses and are discussed below.

Small business tax rates

If you’ve incorporated your business in Canada, you can use the following rates to calculate your federal, and provincial or territorial taxes.

Federal level

If your small business qualifies for the SBD, it will be generally taxed at 9%. For larger businesses, the general corporate tax rate is 15%, calculated as 38% (federal corporate tax rate) – 10% (federal tax abatement) – 13% (general tax reduction).

Provincial and territorial level

Provincial and territorial tax rates have lower and upper limits. If you’re a CCPC, and your taxable income is up to $500,000 in a fiscal year, use the lower rate to calculate your provincial taxes payable. For all other income, use the higher rate.

In Quebec, you’ll pay a total tax of 20.5% (9% at the federal level and 11.5% at the provincial level) of your income up to $500,000 and 26.5% if it’s over $500,000.

GST/HST

If your income exceeds $30,000 in a year, you’ll have to register for a GST/HST number and collect GST/HST on products or services sold to your customers. You’re required to remit these taxes annually or in monthly or quarterly instalments if you have paid at least $3,000 ($1,800 for Quebec) of net tax in the last fiscal year. To reduce your net taxes payable, you can use Input Tax Credits (ITCs) against the GST/HST collected.

Here are the provincial and territorial GST/HST rates you should use to collect sales tax:

Taxes associated with your employees

The following taxes usually require your attention if you have employees:

Payroll taxes

Before paying salaries or wages to your employees, you are required to deduct income tax at the federal, provincial, and territorial levels and remit it to the CRA—usually by the 15th of every month.

To determine how much tax should be deducted, refer to the payroll deduction tables provided by the CRA and the TD1 form completed by your employee when they are hired. This form provides an overview of the amounts you should withhold.

Canada Pension Plan (CPP)

If your employee’s annual salary or wage is between $3,501 and $68,500, you must make CPP contributions at 11.90% per year. In 2024, both the employer and employee must make equal contributions of up to $3,867.50, resulting in a total annual contribution of up to $7,735.

If your employee’s annual salary is over $68,500, you must both contribute up to $376 ($188 each) at 8% under the CPP2 program, which was launched in 2024. The maximum contribution amount of $376 is calculated as: 

$73,200 (second earnings ceiling for 2024) – $68,500 (first earnings ceiling for 2024) * 8%.

Employment Insurance (EI)

Under EI, both you and your employee need to contribute the relevant portions and remit them to the CRA. You must deduct the employment insurance (EI) premium from your employee’s paycheck and contribute 1.4 times the premium amount as the employer portion.

The EI rate for 2024 is 1.66% for maximum insurable earnings of up to $63,200. This means you can deduct up to $1,049.12 ($63,200 * 1.66%) from your employee’s salary and must make an employer contribution of up to $1,468.77, calculated as $1,049.12 * 1.4.

Note: The above rules aren’t applicable to Quebec. Check Quebec’s rules.

Calculating small business taxes in Canada

Here’s an example of how to calculate the corporate taxes payable.

Let’s assume your small business is based in Ontario, and your taxable income after claiming eligible business expenses, credits, and other deductions is $55,000.

When you apply the total tax rate of 12.2% (federal small business rate of 9% + Ontario’s corporate tax rate of 3.2%) on $55,000, your taxes payable will be $6,710.

Tax filing deadline

Corporations must file the T2 form within six months of the end of their fiscal year. The tax payment due date is usually within two months of the end of the fiscal year.

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