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6 Business Income Tax - Canada Facts You Should Know as a Startup Business Owner

Michael Pignatelli
Last Updated on August 31, 2023

Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.

Tax laws can be complex, especially with the many tasks you need to accomplish for your small business. If you're a startup business owner, there are a few things you should know about business income tax in Canada. You might think you’re not competent enough to be dealing with these things since you’re still very new to the playing field. Don’t worry; we are here to help you through these six facts about Canada business income tax or corporate income tax, which every startup should know. We hope you find it helpful!

  • Canadian-resident corporations are required to pay taxes.

You’ll learn various areas of taxation as you grow your business; from personal income tax, sales tax, and now, business income tax, there will certainly be a lot to take in. But the basic fact is that all corporations operating in Canada, unless exempted by the law, are all required to pay corporate income tax. For this tax, you should either pay the federal tax rate of 15% or a 9% small business deduction (SBD) rate for Canadian-controlled Private Corporations (CPCC). Meanwhile, Canadian provinces and territories can either have lower tax rates for CPCCs or higher rates for non-CPCCs and those exceeding the business income limits. 

  • The income tax rate varies per province.

How much is business income tax in Canada? You should check per province as it varies. The provinces included in the table below pay their business income taxes straight to the Canada Revenue Agency (CRA).

ProvinceLower rateHigher rateBusiness income limit
British Columbia2%12%$500,000
New Brunswick2.5%14%$500,000
Newfoundland and Labrador3%15%$500,000
Nova Scotia2.5%14%$500,000
Prince Edward Island2%15%$500,000
Northwest Territories2%11.5%$500,000
  • Alberta and Quebec collect their business income taxes.

Alberta and Quebec legislate and administer their corporate income taxes, not the CRA. If your business is in these places, take note of these tax rate obligations.

In Alberta, the general income tax rate has been 8% since July 1, 2020, and 2% for Canadian small businesses earning less than $500,000 annually.

In Quebec, here are the rates to remember:

Base federal tax rate38%
Rate after federal tax deduction28%
Rate after general tax deductions15%
Rate with small business reduction9%
Federal rate for small to medium CPCCs with $500,000 income9%
Provincial rate for small to medium CPCCs with $500,000 income11.5%/3.38% for manufacturing sector
Personal services business33% federal tax + 11.5% provincial tax rate
business income tax guide canada
  • Tax software assistance is the way to go. 

There are plenty of details to absorb regarding business income tax. Knowing them is great, but know that you can also get assistance from tax software. When using tax software, you do not have to worry about tax computation as it does this automatically. These tools are in sync with tax updates too, which happens often. With that, you know that the payment and declaration you make are accurate.

Some of the software you can check out are Avalara, HelloTax, SimplyVAT, Taxify, Taxjar, or Taxomate. They will surely make your life easier. 

  • Non-compliance can mean getting penalties.

When it comes to filing the correct taxes, the pressure is always on. You don't want tax agencies and the government breathing down your neck when you fail to keep track of your finances. Personal income tax, sales tax, or business income tax—the consequences of not paying on time or accurately is all the same. Your tax declaration will be audited, and any inaccuracy can get your business reprimanded. There will also be penalties when you pay taxes late or not at all, so make sure you understand how taxation works and get the help you need from software to ensure that you are spared from tax hassles. It is best to accomplish your tax computation monthly to avoid cramming during tax season and committing mistakes in your tax declaration. 

  • Accounting experts can make computation easier.

Aside from tax software, you can also partner with actual experts in accounting, bookkeeping, and taxation. Getting help from trained individuals ensures the accuracy of your books, finances, and the taxes you pay. 

Partnering with experts entails tax computation and keeping your books updated. Only when your books are organized can your taxes be computed accurately. With that, when getting assistance, go for expert bookkeepers and accountants. They can organize your income and business expenses, compute your taxes, and even be the third-party payor to process any tax payments. 

Unloop’s Assistance for Business Income Tax - Canada

As a small business owner, you need to know the various taxes you need to pay. In Canada, corporate income tax is one such tax mandated to all resident corporations. The rate at which this tax is levied varies depending on the province your company is based, but some general rules and guidelines apply across the country. We hope you found this business income tax guide Canada) helpful.If you are looking into partnering with bookkeeping and accounting experts, look no further! We, here at Unloop, can be your partner in ensuring you pay the right taxes and tax season be as smooth as possible always. If you want to know more about our services, feel free to contact us at 877-421-7270, so we can discuss the details with you. Hope to hear from you soon!

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228 Park Ave S #82849
New York, NY 10003
United States
7676 Woodbine Ave #2
Markham, ON L3R 2N2
About unloop

Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.