Corporate Tax in Canada Explained

Federal + Provincial Rates: The Full Picture

• Federal general corporate rate: 15% on all taxable income above the small business threshold.
• Federal small business rate: 9% on active business income up to $500,000 (the SBD).
• BC general corporate rate: 12% on income above the SBD threshold, plus the provincial small business rate of 2% on eligible income up to $500,000.
• Combined rates in BC: roughly 11% on the first $500,000 (9% federal + 2% provincial) and 27% on income above that (15% federal + 12% provincial).

The Small Business Deduction ($500K Threshold)

GRIP and RDTOH — After-Tax Corporate Accounts

Passive Income Rules

• If a CCPC earns more than $50,000 of adjusted aggregate investment income (AAII) in the prior year, the SBD is reduced by $5 for every $1 of AII above $50,000.
• At $150,000 of AII, the SBD is fully eliminated. This means a corporation with $100,000 in investment income loses $20,000 of its SBD threshold that year.
• Strategies: limit passive investments inside the corp, pay out dividends to reduce corporate surplus, or hold investments personally if you have room.

Tax Planning Strategies

• Income splitting via family trusts and TOSI-compliant dividends to family members in lower brackets.
• Bonusing down — declare a bonus before year-end to reduce corporate income to the SBD threshold, deferring personal tax on the bonus until received.
• Purchasing capital assets before year-end to claim CCA and reduce taxable income.
• Life insurance within the corporation as a tax-efficient wealth transfer tool — the death benefit is received tax-free by the corporation via the capital dividend account (CDA).