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!
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.
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).
| Province | Lower rate | Higher rate | Business income limit |
| British Columbia | 2% | 12% | $500,000 |
| Manitoba | - | 12% | $500,000 |
| New Brunswick | 2.5% | 14% | $500,000 |
| Newfoundland and Labrador | 3% | 15% | $500,000 |
| Nova Scotia | 2.5% | 14% | $500,000 |
| Ontario | 3.2% | 11.5% | $500,000 |
| Prince Edward Island | 2% | 15% | $500,000 |
| Saskatchewan | 0% | 12% | $500,000 |
| Yukon | 0% | 12% | $500,000 |
| Northwest Territories | 2% | 11.5% | $500,000 |
| Nunavut | 3% | 12% | $500,000 |
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:
| Classification | Rates |
| Base federal tax rate | 38% |
| Rate after federal tax deduction | 28% |
| Rate after general tax deductions | 15% |
| Rate with small business reduction | 9% |
| Federal rate for small to medium CPCCs with $500,000 income | 9% |
| Provincial rate for small to medium CPCCs with $500,000 income | 11.5%/3.38% for manufacturing sector |
| Personal services business | 33% federal tax + 11.5% provincial tax rate |
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.
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.
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.
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!
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.