A Comprehensive Guide to Corporate Tax in Canada
Federal and provincial rates, filing deadlines, and the deductions that actually reduce what a corporation owes
Corporate tax is charged on a corporation’s taxable income: gross revenue minus allowable expenses and deductions. In Canada, corporations pay tax at both the federal level and the provincial or territorial level where they have a permanent establishment, so the total rate depends on where the business operates, not just the type of income.
Federal Corporate Tax Rates
The federal general corporate tax rate is 15% on taxable income. Canadian-controlled private corporations (CCPCs) that qualify for the small business deduction pay a reduced federal rate of 9% on the first $500,000 of active business income, with the general rate applying above that threshold.
Provincial Corporate Tax Rates (Small Business / General)
British Columbia
2% small business, 12% general
Alberta
2% small business, 8% general
Ontario
3.2% small business, 11.5% general
Quebec
3.2% small business, 11.5% general
Ontario and Quebec have both been reviewing a reduction to their small business rate, from 3.2% toward 2.2%, tied to when a corporation’s tax year begins. Because the effective date differs by source at time of writing, confirm the current rate for your specific fiscal year with your accountant or directly on canada.ca before filing.
Filing Deadlines, Deductions, and Credits
T2 Filing Deadline
Due within six months of the corporation’s fiscal year-end, whether or not tax is owed.
Business Expenses
Salaries, rent, utilities, and loan interest incurred to earn business income are generally deductible.
Capital Cost Allowance
Equipment and property are depreciated over time under CRA’s CCA rules rather than deducted all at once.
SR&ED Credits
The Scientific Research and Experimental Development program offers credits for eligible research and innovation spending.
Tax Planning Considerations
A few areas worth reviewing with your accountant rather than deciding on alone: incorporating to access corporate rates instead of personal income tax rates, paying family members through salary or dividends where it genuinely reflects their role in the business, timing large asset purchases around the CCA rules, and choosing between salary and dividend compensation, which are taxed differently. Our financial accounting services and Canadian tax brackets guide cover the related personal and corporate tax planning in more depth.
Frequently Asked Questions
When is a corporate tax return due in Canada?
A T2 corporate income tax return is due within six months of the corporation’s fiscal year-end, whether or not tax is owed or the corporation was inactive for the year.
What is the small business deduction?
It is a reduced federal tax rate of 9%, instead of the general 15% rate, on the first $500,000 of active business income for Canadian-controlled private corporations that qualify.
Do all provinces have the same corporate tax rate?
No. Each province and territory sets its own general and small-business rates, so the combined federal and provincial rate a corporation pays depends on where it has a permanent establishment.
What happens if a corporation files its T2 return late?
Late filing can result in penalties and interest charges on any unpaid tax, in addition to the tax itself, so filing on time matters even when no tax is owed.
Can a corporation deduct the cost of equipment right away?
Generally no. Equipment and other capital assets are depreciated over time under the CRA’s Capital Cost Allowance rules rather than deducted in full in the year of purchase.
Should a small business incorporate for tax reasons?
It depends on the business. Incorporating can provide access to lower corporate tax rates and income-splitting options, but the right structure depends on income level and business goals, which is worth reviewing with an accountant.
Corporate tax touches every corporation operating in Canada, and getting the rate, deadline, and deduction details right protects the business from penalties while keeping more of its profit. Ghumans provides corporate tax preparation and planning for businesses across Canada. Contact us for tax planning support tailored to your corporation.