How to Calculate Corporate Taxable Income in Canada

How to Calculate Corporate Taxable Income in Canada

Corporate income tax in Canada follows a dual rate system. That means if your corporate income falls below a certain level, you pay less income tax.

Read on for a basic overview of taxable corporate income in Canada.

What is a permanent establishment?

If your corporation isn’t based in Quebec or Alberta, but you have a permanent establishment there, you will have to file separately. A permanent establishment can be an office, branch, oil well, farm, timberland, workshop, or other forms of activity.

If an employee, broker or agent does business for you in a certain place, it’s a permanent establishment if either of the following is true:

  • The employee or agent has general authority to contract for the corporation.
  • The employee or agent regularly receives orders and fills them from stock owned by the corporation.

If you work with a commission agent, broker, or similar agent, or you have an office you use just to buy merchandise, it is not a permanent establishment. Neither a subsidiary controlled corporation, nor a subsidiary controlled corporation engaged in trade or business, is considered a permanent establishment.

If you have no particular head office, your permanent establishment is the address listed on your incorporation documents.

Here are some more details on how the Income Tax Regulations define permanent establishment, in Regulation 400(2):

  • An insurance company has a permanent establishment wherever it is registered or licensed to do business.
  • If a corporation with a permanent establishment in Canada owns land in a province, that land is a permanent establishment.
  • A corporation has a permanent establishment if it uses substantial machinery or equipment in a particular place at any time during the tax year.

If your business is incorporated, you need to fill in the T2 income tax return. Check out the CRA document T4012 T2 Corporation – Income Tax Guide 2017 for instructions. The CRA administers all provincial and territorial corporate income tax, except for Quebec and Alberta.

What are federal and provincial tax liabilities for corporations?

Corporations pay tax at both the federal and the provincial/territorial levels. Each province and territory has its own rules for corporate income tax. If you have a permanent establishment in more than one province or territory, you need to fill out Schedule 5.

If you claim provincial or territorial credits or rebates, or pay taxes other than income tax, again, fill out Schedule 5. Here is some information about provincial and territorial corporate tax rates, except Quebec and Alberta.

To file corporate income tax in Quebec, go to the provincial website. Information is in French only. For Alberta, go to their provincial website.

Two business partners working together in office

British Columbia

British Columbia corporate tax rates are based on your overall income. The general tax rate for 2018 is 12.0%, and the lower rate is 2.0%. Canadian-controlled private corporations (CCPCs) with active business income can use the lower rate.

A corporation with active business income is generally neither a specified investment business nor a personal service business. You pay the lower tax rate on your small business if your corporate earned income is less than $500,000. You pay the general rate if your corporate earned income exceeds $500,000.

Try the federal corporate tax calculation tool Schedule 427, British Columbia Corporation Tax Calculation. You don’t have to send it in with your return. Enter the tax amount on line 240 of Schedule 5.

Find your provincial forms on the British Columbia site.

Here are some of British Columbia’s tax credits:

  • Book publishing tax credit
  • Farmers’ food donation tax credit
  • Film and television tax credit
  • Foreign tax credits
  • Interactive digital media tax credits
  • Logging tax credit
  • Mining exploration tax credit

Manitoba

In Manitoba, small businesses pay no corporate income tax at all. The general corporate income tax rate is 12.0%. As of 2019, the small business limit is $500,000.

You can use Schedule 383, Manitoba Corporation Tax Calculation to figure out your basic tax amount before credits. Enter the amount on line 230 of your Schedule 5. Find your provincial forms on the Manitoba site.

Manitoba offers tax credits such as:

  • Book publishing tax credit
  • Community enterprise development tax credit
  • Cooperative development tax credit
  • Green energy equipment tax credit
  • “Neighbourhoods Alive!” tax credit
  • Odour-control tax credit
  • Small business venture capital tax credit

New Brunswick

New Brunswick corporate income tax rates are 2.5% for small businesses. Larger corporations pay a tax rate of 14%. The small business limit is $500,000.

Use Schedule 366, New Brunswick Corporation Tax Calculation to find your basic tax amount for Line 255 of Schedule 5. Find your provincial forms on the New Brunswick site.

Here are some of New Brunswick’s funding programs and tax credits:

  • Foreign tax credit
  • Research and development tax credit
  • Small business investor tax credit
  • New Brunswick Innovation Foundation Funds
  • Agriculture Industry programs
  • Aquaculture Industry programs
  • Tourism Industry support

Newfoundland and Labrador

In Newfoundland and Labrador, the general corporate income tax (CIT) rate is 15%. The rate for Manufacturing and Processing Profits is also 15%. The small business rate is 3%.

Manufacturing and Processing Profits has its own rate since its tax credit was eliminated in 2016. The small business limit is $500,000.

Find your basic tax amount with Schedule 307, Newfoundland and Labrador Corporation Tax Calculation. Enter your amount on Schedule 5 at line 200 and/or line 205. Get your provincial forms at the Newfoundland and Labrador site.

Here is a partial list of Newfoundland and Labrador funding programs and tax credits:

  • Interactive digital media tax credit
  • Direct Equity tax credit
  • Manufacturing and Processing tax credit
  • Small business tax credit
  • Political contributions tax credit
  • Resort property investment tax credit
  • Fisheries Loan Guarantee Program

Sunrise of Toronto (Bay and Dundas)

Northwest Territories

In the Northwest Territories, the general rate is 11.5% and the small business rate is 4%. The small business rate applies to CCPCs with active business income under $500,000.

Use Schedule 461, Northwest Territories Corporation Tax Calculation to figure out your basic tax amount. Use line 250 of Schedule 5. Both federal and territorial corporate income taxes are paid through the federal return.

You can apply for two types of tax credit in the Northwest Territories as well as funding programs, including:

  • Foreign tax credit
  • Political contribution tax credit
  • Aboriginal Capacity Building Program
  • Business Development Project Fund (BDPF)
  • Business Intelligence and Networking (SEED)
  • Waste Reduction and Recycling Initiative Funding
  • Business Term Loans

Nova Scotia

The general corporate income tax rate in Nova Scotia is 16%. The small business rate for CCPCs is 3%. The small business limit is $500,000.

Find your basic tax amount with Schedule 346, Nova Scotia Corporation Tax Calculation. Enter the amount on line 215 and/or line 220 of Schedule 5. Federal and provincial taxes are collected through the federal return.

Look for tax credits in Nova Scotia including:

  • Capital investment tax credit
  • Corporate tax reduction for new small businesses
  • Digital animation tax credit
  • Digital media tax credit
  • Film industry tax credit
  • Food bank tax credit for farmers

There are also many funding and development programs available.

Nunavut

The general corporate income tax rate in Nunavut is 12%. The small business rate is 4%.

Use Schedule 481, Nunavut Corporation Tax Calculation to find your basic tax amount. Enter the amount on line 260 of Schedule 5. Check the CRA for information about territorial corporate income tax.

Check out Nunavut tax credits and funding programs such as:

  • Foreign tax credit
  • Political contribution credit
  • Atuqtuarvik Corporation
  • Aboriginal Business Canada
  • Small Business Support Program
  • Strategic Investments Program
  • Regional Inuit Association Business Support

Ontario

The Ontario corporate income tax basic rate is 11.5%. Small businesses can apply a deduction of 8% to reduce their income tax rate to 3.5%. CCPCs earning more than $10 million will see their deduction phased out. You lose it once your corporate income hits $15 million.

Use Schedule 500, Ontario Corporation Tax Calculation to figure out your basic tax amount. Enter it on line 270 of Schedule 5.

Ontario corporations can use the federal T2 form for the following:

  • Basic income tax
  • Corporate minimum tax
  • Special additional tax for life insurance
  • Additional tax for Crown royalties

Look into Ontario tax credits such as:

  • Apprenticeship training tax credit
  • A corporate minimum tax credit
  • Innovation tax credit
  • Book publishing tax credit
  • Production services tax credit
  • Tax credit for manufacturing and processing
  • Credit union tax reduction

Cropped profile side view  of two co-workers calculating corporate taxable income

Prince Edward Island

The lower rate for corporation income tax in Prince Edward Island is 3.5%. The higher rate is 16%. The small business limit is $500,000.

Figure out your tax amount on Schedule 322, Prince Edward Island Corporation Tax Calculation. Use line 210 of Schedule 5.

Prince Edward Island tax credits include:

  • Corporate investment tax credit
  • Foreign tax credit
  • Political contribution credit

See Innovation PEI for business funding programs.

Saskatchewan

In Saskatchewan, the small business corporate income tax rate is 2%. The general rate is 12%. The small business limit is $600,000.

All corporations based in Saskatchewan have to pay federal and provincial income tax, but some are tax-exempt. These include Crown corporations, Hutterite colonies and registered charities.

Corporations engaged in manufacturing and processing (M&P) qualify for a reduced tax rate. The reduction can be up to two points, depending on how much activity takes place in Saskatchewan.

Use Schedule 411, Saskatchewan Corporation Tax Calculation, help figure out your basic tax amount. Use line 235 of Schedule 5.

Check out Saskatchewan tax credits and tax incentives such as:

  • Foreign tax credit
  • Manufacturing and processing investment tax credit
  • Manufacturing and processing profits tax reduction
  • A political contribution tax credit
  • A qualifying environmental trust tax credit
  • Research and development tax credit
  • Oil and gas drilling incentives

Yukon

In the Yukon, the lower corporate income tax rate for small businesses is 2%. Businesses earning corporate income below $500,000 qualify. The general rate is 12%.

Use Schedule 443, Yukon Corporation Tax Calculation to figure out your tax before credits. Use line 245 of Schedule 5.

There are Yukon tax credits, subsidies and funding programs such as:

  • Foreign tax credit
  • Manufacturing and processing profits tax credit
  • A political contribution tax credit
  • Research and development tax credit
  • Subsidy to hire a summer student
  • Filming in Yukon
  • Agriculture funding

What is a taxable income calculator?

Your best bet for figuring out your taxable corporate income is the CRA tool for your province or territory. You should be clear on your corporate earnings to determine your income tax bracket.

Do you qualify for the lower, small business rate in your region? Make sure your financial statements confirm that your corporate income falls within the limit to claim the standard deduction. Deductions for corporations vary across the country and are subject to frequent change.

Stick with reliable sources when it comes to identifying which deductions your corporation might claim. Check your local government website frequently. Whenever possible, seek the advice of a finance, legal or tax professional.

Rebecca Rustin

Rebecca is a Montreal freelance writer and translator specializing in the humanities and finance. An upcoming academic project will focus on performing arts in Quebec.

MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.

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