Corporate tax rate Canada: what small businesses actually pay

Published Friday 31 July 2026

Table of contents

• What is the corporate tax rate in Canada?
• Small business tax rate in Canada (CCPC rate)
• Corporate tax rates by province and territory
• What reduces your small business deduction?
• Recent changes to corporate tax rates (2025 – 2026)
• How to file corporate taxes in Canada
• Simplify your small business taxes with Xero
• FAQs on corporate tax rates in Canada

Key takeaways

• The federal corporate tax rate is 15% for general income, but Canadian-controlled private corporations (CCPCs) pay just 9% on the first $500,000 of active business income through the small business deduction (SBD). Some provinces have raised their own SBD limits above $500,000.
• Combined federal and provincial small business rates range depending on where your business operates, from 9% in Manitoba and Yukon to 12.2% in Quebec,.
• Passive investment income above $50,000 reduces your access to the small business rate by $5 for every $1 earned, and it disappears entirely at $150,000.
• Alberta, Manitoba, Saskatchewan, and Yukon offer the lowest combined small business tax rates in the country, making them attractive provinces for incorporated small businesses.

What is the corporate tax rate in Canada?

If you run an incorporated business in Canada, you pay corporate income tax at both the federal and provincial or territorial levels. The rate you actually pay depends on your corporation type, your income level, and where you operate.

Federal corporate tax rate breakdown

The starting federal corporate tax rate is 38%. But most businesses don't pay anywhere close to that. Here's how the math works:

1. Start at 38%, which is the base federal rate set out in the Income Tax Act.
2. Subtract a 10% federal abatement for income earned in a Canadian province or territory, bringing the rate to 28%.
3. Subtract a 13% general rate reduction for qualifying active business income, bringing the final rate to 15%.

That 15% is the general federal corporate tax rate that applies to most corporations in Canada. If your corporation qualifies as a Canadian-controlled private corporation (CCPC), you can reduce this even further through the small business deduction (SBD), which brings the federal rate down to 9% on the first $500,000 of active business income.

How provincial tax rates work

On top of the federal rate, each province and territory charges its own corporate income tax. Provincial general rates range from 8% in Alberta to 15% in Newfoundland and Labrador and Prince Edward Island.

When you add the federal and provincial rates together, the combined general corporate tax rate in Canada ranges from about 23% to 30%, depending on where your business is located. For small businesses that qualify for the SBD, the combined rate is much lower, typically between 9% and 12.2%.

You don't file a separate provincial tax return in most cases. The Canada Revenue Agency (CRA) collects provincial corporate tax on behalf of most provinces, except Quebec and Alberta, which administer their own corporate tax systems.

Small business tax rate in Canada (CCPC rate)

The small business tax rate is one of the biggest tax advantages available to incorporated businesses in Canada. It can cut your federal rate from 15% to just 9%, saving thousands of dollars in tax each year.

What qualifies as a small business for tax purposes?

To access the small business rate, your corporation must be a Canadian-controlled private corporation (CCPC). That means it needs to meet several criteria:

• Be a private corporation, meaning its shares aren't listed on a stock exchange.
• Be incorporated in Canada or be a resident Canadian corporation.
• Not be controlled, directly or indirectly, by one or more non-resident persons.
• Not be controlled by a public corporation or by a combination of public and non-resident entities.
• Not have a class of shares listed on a designated stock exchange.

If your corporation meets these requirements, the reduced rate applies to active business income up to the business limit. Passive investment income, such as interest, dividends, and rental income, is taxed at a different, higher rate.

How the small business deduction works

The small business deduction reduces the federal tax rate on active business income from 15% to 9%. It applies to the first $500,000 of qualifying active business income. Some provinces, including Saskatchewan and Prince Edward Island, have set their own provincial SBD limits at $600,000, while Nova Scotia has raised its limit to $700,000.

If your corporation is associated with other corporations, you share the $500,000 limit across the group. That means if you own multiple CCPCs, the total active business income eligible for the SBD across all associated corporations is capped at the business limit.

The SBD only applies to active business income. This includes income from selling goods or providing services, but doesn't include investment income, property income, or capital gains.

Combined small business rates by province

Your total small business tax rate depends on which province or territory your business earns its income in. Here are the combined federal and provincial small business rates for each jurisdiction:

• Alberta: 11% (9% federal + 2% provincial)
• British Columbia: 11% (9% federal + 2% provincial)
• Manitoba: 9% (9% federal + 0% provincial)
• New Brunswick: 11.5% (9% federal + 2.5% provincial)
• Newfoundland and Labrador: 11.5% (9% federal + 2.5% provincial)
• Northwest Territories: 11% (9% federal + 2% provincial)
• Nova Scotia: 10.5% (9% federal + 1.5% provincial)
• Nunavut: 12% (9% federal + 3% provincial)
• Ontario: 11.2% (9% federal + 2.2% provincial)
• Prince Edward Island: 10% (9% federal + 1% provincial)
• Quebec: 12.2% (9% federal + 3.2% provincial)
• Saskatchewan: 10% (9% federal + 1% provincial)
• Yukon: 9% (9% federal + 0% provincial)

These rates apply to active business income up to the SBD limit. Any income above that limit is taxed at the general combined rate.

Corporate tax rates by province and territory

Understanding how tax rates vary by province helps you plan your business finances more effectively. Below is a full breakdown of both small business and general corporate tax rates across Canada.

Small business rates by province

Each province sets its own small business tax rate, which combines with the 9% federal rate. The provincial small business rates are:

• Alberta: 2%
• British Columbia: 2%
• Manitoba: 0%
• New Brunswick: 2.5%
• Newfoundland and Labrador: 2.5%
• Northwest Territories: 2%
• Nova Scotia: 1.5%
• Nunavut: 3%
• Ontario: 2.2%
• Prince Edward Island: 1%
• Quebec: 3.2%
• Saskatchewan: 1%
• Yukon: 0%

General corporate rates by province

When income exceeds the SBD limit, or if a corporation doesn't qualify as a CCPC, the general rate applies. Here are the provincial general rates, which combine with the 15% federal general rate:

• Alberta: 8% (combined: 23%)
• British Columbia: 12% (combined: 27%)
• Manitoba: 12% (combined: 27%)
• New Brunswick: 14% (combined: 29%)
• Newfoundland and Labrador: 15% (combined: 30%)
• Northwest Territories: 11.5% (combined: 26.5%)
• Nova Scotia: 14% (combined: 29%)
• Nunavut: 12% (combined: 27%)
• Ontario: 11.5% (combined: 26.5%)
• Prince Edward Island: 15% (combined: 30%)
• Quebec: 11.5% (combined: 26.5%)
• Saskatchewan: 12% (combined: 27%)
• Yukon: 12% (combined: 27%)

Which provinces have the lowest corporate tax rates?

For small businesses, the lowest combined rates are in Manitoba and Yukon at 9%, since neither charges a provincial small business tax. Saskatchewan and Prince Edward Island follow at 10%.

For general corporate income, Alberta has the lowest combined rate at 23%, thanks to its 8% provincial rate. Ontario, Quebec, and the Northwest Territories tie at 26.5%.

If you're deciding where to incorporate or expand, tax rates are one factor to consider alongside your industry, your workforce, and the overall cost of doing business in each province.

What reduces your small business deduction?

Even if your corporation qualifies as a CCPC, two clawback rules can reduce or completely eliminate your access to the small business deduction. Both are based on the financial activity of your corporation and any associated corporations.

Passive investment income clawback

If your corporation (and any associated corporations) earn more than $50,000 in adjusted aggregate investment income (AAII) in a tax year, the federal SBD limit starts to shrink. The reduction works on a $5 for $1 basis.

Here's how it breaks down:

• $50,000 or less in AAII: full SBD limit available.
• Between $50,000 and $150,000 in AAII: SBD limit reduced by $5 for every $1 above $50,000.
• $150,000 or more in AAII: SBD limit reduced to zero.

For example, if your corporation earns $75,000 in passive investment income, the SBD limit drops by $125,000 (that is, $75,000 minus $50,000, multiplied by five). Your business limit would be $375,000 instead of $500,000.

Types of passive investment income that count toward the AAII threshold include interest, rental income, royalties, and taxable capital gains. Ontario and New Brunswick don't apply this clawback at the provincial level, so your provincial SBD may remain intact even if the federal portion is reduced.

Taxable capital clawback

A second clawback applies when your corporation and its associated corporations have taxable capital employed in Canada between $10 million and $50 million. This is measured using the prior year's taxable capital.

The reduction is calculated as follows:

• Under $10 million: full SBD limit.
• Between $10 million and $50 million: SBD limit reduced proportionally.
• $50 million or more: SBD limit reduced to zero.

This clawback mainly affects larger corporations. If your business has less than $10 million in taxable capital, it won't apply to you. When both clawbacks apply, your SBD limit is reduced to the lower of the two calculations.

Recent changes to corporate tax rates (2025 – 2026)

Canadian corporate tax rules have seen meaningful changes over 2025 and 2026.

Provincial small business deduction limit increases

While the federal SBD limit remains at $500,000, several provinces have raised their own provincial business limits, giving CCPCs more income eligible for the lower provincial rate:

• Nova Scotia raised its provincial SBD limit to $700,000 and lowered its small business rate from 2.5% to 1.5%, both effective 1 April 2025.
• Saskatchewan offers a $600,000 provincial SBD limit.
• Prince Edward Island increased its limit to $600,000 and reduced its general corporate rate from 16% to 15%, both effective 1 July 2025.

In these provinces, active business income between $500,000 and the provincial limit is taxed at the federal general rate of 15% but still qualifies for the lower provincial small business rate.

Provincial rate changes

The federal general corporate tax rate remains at 15% for 2026. No federal changes are currently scheduled.

At the provincial level, Ontario announced a reduction to its lower rate of corporate income tax, dropping it from 3.2% to 2.2% effective 1 July 2026. That brings Ontario's combined small business rate from 12.2% down to 11.2%.

Other changes to watch

Several additional changes are worth keeping in mind as you plan your corporate tax strategy:

• The passive investment income threshold remains at $50,000. This means the clawback still kicks in at the same level of investment income regardless of any provincial SBD limit increases.
• The CRA continues to expand its digital services and is requiring more corporations to file electronically.
• Some provinces are reviewing their own corporate tax structures, so it's worth checking your province's latest budget announcements.

How to file corporate taxes in Canada

Filing your corporate income tax return correctly and on time keeps your business in good standing with the CRA. Here's what you need to know about the process, key deadlines, and deductions that can lower your tax bill.

T2 corporate tax return basics

Every corporation that operates in Canada needs to file a T2 corporate income tax return each year, even if it has no tax owing. The T2 covers your corporation's income, deductions, and credits for the tax year. You'll also need to file any applicable provincial returns if your business operates in Quebec or Alberta.

Here are the key filing details:

• Your filing deadline is six months after the end of your corporation's fiscal year. If your fiscal year ends on 31 December, your T2 is due by 30 June.
• Your tax payment deadline is two months after your fiscal year-end for most corporations, or three months for qualifying CCPCs with taxable income under $500,000 in the prior year.
• You must file electronically if your corporation has annual gross revenue over $1 million.
• If you miss the deadline, the CRA charges a penalty of 5% of the balance owing, plus 1% for each full month the return is late, up to 12 months.

Read more about filing your corporate income tax return.

Common deductions for small businesses

Claiming all your eligible deductions reduces your taxable income, which directly lowers the amount of tax you pay. Here are some of the most common deductions available to Canadian small businesses:

• Business-use-of-home expenses: If you run your business from home, you can deduct a proportional share of rent, utilities, insurance, and property taxes.
• Salaries and wages: Amounts paid to employees, including bonuses and commissions.
• Advertising and marketing costs: Expenses for promoting your business, including digital advertising.
• Professional and consulting fees: Payments to accountants, lawyers, and other professional advisors.
• Office supplies and expenses: Stationery, postage, and other day-to-day business supplies.
• Vehicle expenses: Fuel, insurance, maintenance, and lease costs for vehicles used for business purposes.
• Capital cost allowance (CCA): A deduction that lets you write off the cost of depreciable property, such as equipment, furniture, and vehicles, over several years.
• Meals and entertainment: 50% of expenses for meals and entertainment related to earning business income.

Keep detailed records and receipts for all business expenses. Accurate bookkeeping makes tax time simpler and helps support your deductions if the CRA reviews your return.

You can also deduct bad debts, bank fees, business insurance premiums, and interest on money borrowed for business purposes. If you're unsure whether an expense qualifies, check with your accountant or refer to the CRA's guide on business expenses.

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FAQs on corporate tax rates in Canada

Here are answers to common questions about corporate tax rates in Canada.

What is the corporate tax rate in Canada for small businesses?

The combined federal and provincial small business tax rate ranges from 9% to 12.2%, depending on which province or territory your business operates in. This applies to CCPCs on active business income up to the SBD limit.

What is the difference between the small business rate and the general corporate rate?

The small business rate (9% federal) applies to CCPCs on active business income up to the SBD limit. The general rate (15% federal) applies to income above that limit or to corporations that don't qualify as CCPCs.

Is the small business deduction limit changing?

The federal SBD limit remains at $500,000, but some provinces have raised their own limits. Nova Scotia offers a $700,000 provincial limit, while Saskatchewan and Prince Edward Island each offer $600,000.

How does passive investment income affect the small business deduction?

If your corporation and its associated corporations earn more than $50,000 in adjusted aggregate investment income, the SBD limit is reduced by $5 for every $1 above that threshold. At $150,000 in investment income, the SBD is eliminated entirely.

Do all provinces have the same corporate tax rate?

No. Each province and territory sets its own corporate tax rates. Provincial small business rates range from 0% (Manitoba, Yukon) to 3.2% (Quebec), while general rates range from 8% (Alberta) to 15% (Newfoundland and Labrador, Prince Edward Island).

When is a corporate tax return due in Canada?

Your T2 return is due six months after your corporation's fiscal year-end. Tax payments are due two months after year-end for most corporations, or three months for qualifying CCPCs.

Can a holding company claim the small business deduction?

A holding company that qualifies as a CCPC can claim the SBD on active business income. However, most holding companies primarily earn passive investment income, which doesn't qualify for the SBD and may trigger the passive income clawback.

What is the most tax-efficient province to incorporate in?

Manitoba and Yukon have the lowest combined small business rates at 9%. For general corporate income, Alberta offers the lowest combined rate at 23%. However, you should choose your province based on where you actually carry on business, not just the tax rate.