Written by Maryam Ajorloo, CPA · Reviewed by Behdad Karimi Dermeni, CPA
Corporate tax in Canada comes in two layers: a federal rate plus a provincial or territorial rate. A Canadian-controlled private corporation claiming the small business deduction pays 9% federally on its first $500,000 of active business income. Anything above that, and every corporation that does not qualify, pays 15% federally. Then your province adds its own rate on top.
When you hear the word "corporation" you might picture a tower downtown and a boardroom with too many chairs. In practice a Canadian corporation can be one person with a laptop and a business number. If you have incorporated, the same rulebook applies to you as to the tower, which sounds ominous until you realize most of it is genuinely simple once someone lays out the numbers.
That is what this guide does. Here is the one rule to hold onto before any of the detail: your corporation pays tax in two layers, federal and provincial. The single biggest lever on both is whether your profit qualifies for the small business deduction. Almost everything below is a variation on those two sentences.
Knowing your rate is one thing. Knowing what number to apply it to is the part that trips people up, and that comes down to whether your books are current. If yours are a few months behind, ReInvestWealth's AI Bookkeeper can catch them up: start free for 30 days.
Understanding Corporate Tax in Canada
Corporate tax in Canada is the tax charged on the profits your corporation earns. It is administered at the federal level by the Canada Revenue Agency (CRA), and separately by each province and territory. Both levels want their share of the same profit, which is why you cannot answer "what is my corporate tax rate" with a single number.
Two things determine what you actually pay: what kind of corporation you are, and where you operate. Get those two right and the rate follows.
The role of federal and provincial taxes
At the federal level, the basic rate of Part I tax is 38% of taxable income. That number looks alarming and almost nobody pays it. After the federal tax abatement it drops to 28%, and after the general tax reduction the net federal rate lands at 15%.
For a Canadian-controlled private corporation (CCPC) claiming the small business deduction, the net federal rate is 9%. Manufacturers of qualifying zero-emission technology get half of each: 7.5% general and 4.5% small business.
On top of the federal rate, every province and territory charges its own corporate income tax. Provincial rates currently run from 0% to 15% depending on the province and on whether your income qualifies for the lower rate. Add the two layers together and you get the number that matters, which is what the next section does for you.
Small business rate vs general rate
Canada runs two corporate rates, and the line between them is not about how many employees you have or how you feel about your business. It is a legal test.
The lower rate applies to active business income that qualifies for the federal small business deduction. To get it, your corporation has to be a Canadian-controlled private corporation and its qualifying active business income has to fall within the business limit, which is $500,000 federally.
The higher rate, often called the general rate, applies to everything else: income above the business limit, income earned by public companies and their subsidiaries, and income that is not active business income.
Most owner-operated Canadian corporations sit comfortably in the first group. If your corporation is you, a bank account, and clients who pay invoices, you are almost certainly looking at the small business rate.
What Your Corporation Actually Pays: Combined Rates by Province
Here is the number most guides make you calculate yourself. These are the combined federal plus provincial rates, using the 9% federal small business rate and the 15% federal general rate. Rates verified against the CRA's corporation tax rates page, Revenu Québec, and Alberta's Tax and Revenue Administration.
Alberta: 11% small business, 23% general
British Columbia: 11% small business, 27% general
Manitoba: 9% small business, 27% general
New Brunswick: 11.5% small business, 29% general
Newfoundland and Labrador: 11.5% small business, 30% general
Northwest Territories: 11% small business, 26.5% general
Nova Scotia: 10.5% small business, 29% general
Nunavut: 12% small business, 27% general
Ontario: 12.2% small business, 26.5% general
Prince Edward Island: 10% small business, 30% general
Quebec: 11.2% small business, 26.5% general
Saskatchewan: 10% small business, 27% general
Yukon: 9% small business, 27% general
Two things jump out. Manitoba and Yukon charge nothing provincially on small business income, so a qualifying corporation there pays 9% all in. And Alberta's 23% general rate is the lowest in the country by a clear margin, which is a real part of why Alberta keeps showing up in incorporation conversations.
The spread on the small business side is narrower than people expect: 9% to 12.2%, so about three points from best to worst. Worth knowing, rarely worth relocating for.
Provincial and Territorial Corporate Tax Rates
If you want the two layers separately, this is the provincial piece on its own. The lower rate applies to income eligible for the federal small business deduction, the higher rate applies to everything else, and the business limit is the ceiling on the lower rate.
British Columbia: 2% lower, 12% higher, $500,000 limit
Manitoba: 0% lower, 12% higher, $500,000 limit
New Brunswick: 2.5% lower, 14% higher, $500,000 limit
Newfoundland and Labrador: 2.5% lower, 15% higher, $500,000 limit
Northwest Territories: 2% lower, 11.5% higher, $500,000 limit
Nova Scotia: 1.5% lower, 14% higher, $700,000 limit
Nunavut: 3% lower, 12% higher, $500,000 limit
Ontario: 3.2% lower, 11.5% higher, $500,000 limit
Prince Edward Island: 1% lower, 15% higher, $600,000 limit
Saskatchewan: 1% lower, 12% higher, $600,000 limit
Yukon: 0% lower, 12% higher, $500,000 limit
Note the three exceptions at the end. It is a common and expensive assumption that every province uses the federal $500,000 limit. Nova Scotia raised its limit to $700,000 effective April 1, 2025, and Prince Edward Island and Saskatchewan both sit at $600,000. If you operate in one of those three, more of your profit qualifies for the lower provincial rate than you might think.
Key differences across provinces
Alberta and Quebec are missing from the list above, and not by accident. Neither has a corporation tax collection agreement with the CRA, so they administer and collect their own corporate tax. In Quebec that is Revenu Québec. In Alberta it is the Tax and Revenue Administration (TRA), and it means a separate return in both cases.
Corporate tax rate in Quebec
Quebec's general corporate tax rate is 11.5%. Its small business rate is 2.2% for taxation years beginning after April 29, 2026, down from 3.2%, after Revenu Québec increased the small business deduction rate from 8.3% to 9.3%. Combined with the federal rates, a qualifying Quebec corporation pays 11.2% and a general-rate one pays 26.5%.
Quebec also adds a condition no other province has: the full small business deduction depends on remunerated hours. A corporation with very few paid hours can see the deduction reduced or lost entirely. If you run a Quebec corporation with no employees beyond yourself, this is the rule to check first. We cover it properly in our guide to the Quebec small business deduction and the 5,500-hour rule.
Also worth retiring a myth: Quebec has a reputation for high taxes, and on the personal side there is something to that. At the corporate level Quebec sits mid-pack, and its general rate is actually lower than Newfoundland's, Prince Edward Island's, Nova Scotia's, and New Brunswick's.
Corporate tax rate in Alberta
Alberta's general corporate tax rate is 8%, the lowest of any province, and its small business rate is 2% on the first $500,000. Combined with the federal rates that is 11% for a qualifying small corporation and 23% general.
One Alberta detail that catches people: for taxation years beginning after December 31, 2024, essentially all corporations must file the Alberta AT1 return electronically through net file. The exceptions are narrow: insurance corporations, non-resident corporations, corporations reporting in functional currency, and corporations exempt under the Alberta Corporate Tax Act.
Special rates for specific industries
A handful of industries sit outside the two standard rates:
Manufacturing and processing corporations, known as M&P corporations, have their own rates, and manufacturers of qualifying zero-emission technology get the reduced federal rates noted earlier.
Resource industries such as oil, gas, and mining carry their own considerations.
Banks and life insurers pay an additional federal tax of 1.5% on taxable income, subject to a $100 million exemption shared among group members.
Several provinces layer on industry-specific credits and incentives.
If your business is a service business, and most Canadian small corporations are, none of this applies to you and you can move on with a clear conscience.
The Small Business Deduction: How You Get to 9%
The small business deduction is the difference between paying 9% federally and paying 15%. On $500,000 of profit that gap is $30,000, which is a meaningful amount of money to leave on the table through paperwork.
To qualify, your corporation has to be a CCPC and the income has to be active business income within the business limit. Active business income means income from actually running a business: billing clients, selling products, doing the work. Investment income does not count, which becomes important in a moment.
This guide covers the deduction at a high level. For the full mechanics, including the associated-corporation rules and how to claim it on your return, read our dedicated guide to the small business deduction in Canada.
What happens when you cross $500,000
Nothing dramatic, which surprises people who expect a cliff. Crossing the business limit does not push your whole profit up to the general rate. The limit works like a bucket: the first $500,000 of qualifying active business income gets the low rate, and only the amount above it gets the general rate.
So an Ontario corporation with $600,000 of active business income pays roughly 12.2% on the first $500,000 and roughly 26.5% on the remaining $100,000. Your effective rate creeps up as more profit sits above the line. This is called a blended or dual rate, and if your fiscal year straddles a rate change you calculate it based on the number of days each rate was in effect.
The practical takeaway: growing past $500,000 is not a tax problem to be avoided. It is a good year with a slightly higher average rate attached.
How passive income shrinks your small business deduction
Passive income is income your money earns rather than income your work earns: interest, dividends, rent, and the taxable portion of capital gains. If your corporation is holding a cash cushion or an investment portfolio, this section is for you.
Since taxation years beginning after 2018, passive investment income can reduce the business limit itself. The CRA calls the relevant figure adjusted aggregate investment income, and the rule works like this:
Below $50,000 of adjusted aggregate investment income, nothing happens.
Between $50,000 and $150,000, your business limit is ground down. Every dollar of passive income in that band costs you five dollars of business limit.
Above $150,000, the business limit is nil and none of your active business income gets the small business rate.
There is a second, separate grind based on size. A CCPC with taxable capital employed in Canada of $50 million or more does not qualify for the deduction at all. Between $10 million and $50 million, the limit is reduced on a straight line. Your business limit reduction is the greater of the two grinds, not the sum, which is a small mercy.
The intent behind the passive income rules was to nudge corporations toward reinvesting in their operations rather than accumulating investment portfolios inside the company. Whether it worked is a debate for a different article. Either way, if your corporation earns meaningful investment income, this is worth a conversation with your accountant before year-end rather than after.
Every one of these thresholds depends on knowing your actual active business income, which depends on your transactions being categorized correctly. That is the part ReInvestWealth's AI Bookkeeper does for you: see how it works.
When Is Corporate Tax Due in Canada?
Two different deadlines, and mixing them up is one of the most common and most avoidable corporate tax mistakes.
Filing your T2: due 6 months after the end of your fiscal year. A December 31 year-end means the return is due June 30.
Paying your balance: due 2 months after the end of your fiscal year. That extends to 3 months if your corporation was a CCPC throughout the year, claimed the small business deduction in the current or previous year, and meets the other conditions.
Instalments: many corporations have to pay corporate tax in monthly or quarterly instalments during the year rather than in one lump at the end.
Read that again, because it is the trap: the money is due before the return is. Plenty of owners file on time in June and are quietly accruing interest from March. If you take one thing from this section, take that.
If a deadline has already slipped, our tax penalty calculator will tell you what the late filing is actually costing you, which is usually less frightening than the not knowing.
For the full calendar, including instalment dates and how the corporate deadlines interact with your personal ones, see our guide to tax deadlines for small businesses in Canada. For the return itself, our step-by-step guide to filing small business taxes in Canada walks through the mechanics.
Corporate Capital Gains and Investment Income
If your corporation sells an asset at a profit, or earns interest and dividends, that income is taxed differently from your regular business profit.
Capital gains are included in income at one-half of the gain. The proposed increase to a two-thirds inclusion rate, announced in 2024 and deferred in January 2025, was cancelled, so the CRA administers the enacted one-half rate. Given how much noise that proposal generated, it is worth saying plainly: nothing changed.
Investment income earned inside a corporation is taxed at a higher rate than active business income, and part of that tax is refundable to the corporation when it pays taxable dividends to shareholders. The mechanism is more involved than a rate table can capture, and it is genuinely a place to get professional advice rather than a blog answer.
The relevant point for most owners is simpler: investment income does not get the small business rate, and enough of it will cost you the small business rate on your active income too.
Tax Credits and Incentives
Rates are only half of your tax bill. What you deduct and what you claim is the other half, and Canada offers a fair amount of both. Charitable gifts belong here too, with their own limit and their own line on the T2: here is how charitable donations work in Canada.
At the federal level, the two that come up most often for small corporations:
The SR&ED investment tax credit: the Scientific Research and Experimental Development program supports corporations doing qualifying research and development work. Software and product development often qualifies and owners often assume it does not.
Capital cost allowance, which lets you deduct the cost of equipment, vehicles, and other capital assets over time rather than all at once.
Provincial incentives and credits
Every province runs its own programs on top of the federal ones, and they vary widely. Alberta, for example, offers the Innovation Employment Grant worth up to 20% of qualifying research and development spending, and an Agri-Processing Investment Tax Credit for large investments in agri-processing facilities. Other provinces target film and media, job creation, or investment in specific regions.
We keep a running list in our guide to small business tax credits and grants in Canada. It is worth a read before year-end rather than after, since some programs need to be applied for while the spending is happening.
Legal Tax Planning vs Aggressive Tax Planning
There is a real line between arranging your affairs sensibly and pushing into territory the CRA will reverse, and it is worth understanding where it sits.
Legal tax planning means using the rules as written: claiming the small business deduction you qualify for, timing capital purchases sensibly, choosing between salary and dividends, claiming credits you are entitled to. This is expected and entirely ordinary.
Aggressive tax planning means structuring transactions whose main purpose is a tax benefit rather than a business one. The short-term saving can be real. So can the reassessment, the interest, and the penalties.
Understanding anti-avoidance rules
The CRA enforces anti-avoidance rules that let it reassess transactions it considers artificial or abusive for tax purposes. If a transaction is caught by those rules, the tax benefit is denied and penalties and interest can follow.
The practical guidance here is unglamorous and it works. If a structure only makes sense because of the tax result, and you would not do it otherwise, get a second professional opinion before you do it at all.
One planning decision that is entirely legitimate and that almost every incorporated owner faces is how to pay yourself. Our guide to salary vs dividends in Canada works through it, and our salary vs dividend calculator does the arithmetic.
How to Keep Your Corporation Ready for Tax Time
Every rate and threshold in this guide depends on one input: knowing what your corporation actually earned and spent. Three habits cover most of it.
Keep the corporate and personal money separate. One business bank account, one business card, and expenses paid from the right one. Mixing them is the single biggest source of year-end cleanup work, and it is the thing your accountant will charge you the most to untangle.
Capture receipts as they happen, not in March. Smart Shoebox (your receipt inbox) lets you upload or forward receipts as they arrive and matches them to the right bank transaction, so the documentation exists before anyone asks for it.
Categorize as you go. ReInvestWealth's AI Bookkeeper reviews your transactions and categorizes them for you, so your income statement is a live picture rather than a March reconstruction. When you know your active business income in October, you can still do something about your December 31 position.
None of this replaces your accountant, and it is not meant to. It means the person handling your T2 spends their time on tax planning and filing rather than on sorting out which coffee was a client meeting.
Ready to stop reconstructing the year every spring? Connect your bank, let the AI categorize your transactions, and hand your accountant books that are already tax-ready. CPA-level clean, 30 days free. Start for free → Or if you want the return handled too, see our T2 and CO-17 corporate tax filing.
Frequently Asked Questions
What is the basic corporate tax rate in Canada?
The basic federal rate of Part I tax is 38% of taxable income. It falls to 28% after the federal tax abatement and to a net 15% after the general tax reduction. A Canadian-controlled private corporation claiming the small business deduction pays a net federal rate of 9% on qualifying active business income.
Which province has the lowest corporate tax rate in Canada?
Alberta has the lowest general corporate rate at 8% provincially, or 23% combined with the federal rate. On small business income, Manitoba and Yukon charge 0% provincially, so a qualifying corporation there pays only the 9% federal rate. Ontario has the highest combined small business rate at 12.2%.
How much tax does a small business pay in Canada?
A Canadian-controlled private corporation claiming the small business deduction pays 9% federally on its first $500,000 of active business income, plus its provincial rate. Combined, that works out to between 9% and 12.2% depending on the province. Income above the business limit is taxed at the general rate instead.
How can a small business reduce its tax burden?
Claim the small business deduction you qualify for, claim capital cost allowance on equipment and vehicles, and look at federal and provincial credits such as SR&ED. Plan the salary and dividend mix deliberately. Watch passive investment income so it does not grind down your business limit. All of it depends on accurate books.
When is corporate tax due in Canada?
Your T2 return is due 6 months after your fiscal year-end. Your balance of tax is due earlier, at 2 months after year-end. That extends to 3 months if your corporation was a CCPC throughout the year, claimed the small business deduction in the current or previous year, and meets the other conditions. Many corporations also pay instalments during the year.
What happens if you do not file corporate taxes in Canada?
The late-filing penalty is 5% of the unpaid tax owing at the deadline, plus 1% of that unpaid tax for each complete month the return is late, to a maximum of 12 months. It rises to 10% plus 2% per month, to a maximum of 20 months, where the CRA issued a demand to file and assessed a failure-to-file penalty in any of the 3 previous tax years. Interest accrues on top.
Can I do my own corporate tax return?
You can. A T2 is more involved than a personal return, and the schedules around the small business deduction, capital cost allowance, and passive income are where self-filers most often go wrong. If your corporation is simple and your books are clean it is manageable. If anything unusual happened during the year, have a CPA handle it.
How far back can the CRA reassess a corporation?
The normal reassessment period is 3 years from the date of the original notice of assessment if the corporation was a CCPC at the end of the year. For a corporation that was not a CCPC, it is 4 years. That period can be extended, including by another 3 years in certain situations, and there is no limit where there has been misrepresentation attributable to neglect, carelessness, wilful default, or fraud.
A note from our CPAs: This guide is educational and covers the general rules for Canadian corporations. Rates, limits, and thresholds change, and your situation may include wrinkles a guide cannot anticipate, so for advice on your specific circumstances talk to your accountant. (If they use ReInvestWealth, they will already have clean books to work from.)
Written by Maryam Ajorloo, CPA
Maryam Ajorloo is the co-founder of ReInvestWealth and a CPA who specializes in small business tax, sales tax, and everyday bookkeeping. She helps entrepreneurs keep clean, audit-ready books and make sense of write-offs, filing deadlines, and the numbers behind their business. Read more · Connect on LinkedIn
Reviewed by Behdad Karimi Dermeni, CPA
Co-founder of ReInvestWealth and a founding community builder at Stripe. Behdad built ReInvestWealth to give smart, busy entrepreneurs CPA-level accounting without the CPA-level price tag. Read more · Connect on LinkedIn
