The small business deduction is one of the most advantageous income tax benefits for company owners in Canada. The deduction lowers the amount of the Part 1 tax otherwise required of business owners. As of the first of January, adjusted tax rates allow a small corporation to qualify at the tax rate of 4.5% in the province of Ontario. Others will still need to pay the standard tax rate of 11.5%. Owners of Canadian businesses are encouraged to examine the tax guidelines to see if they qualify for this lower rate. A useful tool for this purpose is TurboTax Canada.
The Canada Tax Agency has released a chart detailing the varying rates of corporate taxes for different types of businesses. Data is listed for all provinces except Quebec and Alberta, which are exempt from corporate taxes. To qualify for this lower rate, Canadian companies need to meet certain criteria. Each needs to be a Canadian-controlled private company and must meet all the rules set forth in the T4012-T2 Corporate Tax Guide. Each corporation needs to have been incorporated in Canada after the first of June 1971 and must operate fully in the country for all of the given tax year. The CEO of each corporation must also be a full-time Canadian resident. Shares of each qualifying corporation must also not be traded in overseas stock exchanges.
Does Your Corporation Qualify For A Small Business Deduction?
by Steven R Patterson