To run a business in Canada, you must pay corporate taxes. And these vary depending on the province or territory where your company operates. The rate is different for each region, and it changes every year. This article will cover how corporate taxes are calculated and what rates you can expect for each province or territory.
The Alberta corporate tax rate is 10%. This rate applies to taxable income up to $500,000, after which it rises to 12%.
Alberta’s small business tax rate is 4%, which applies to corporations with taxable incomes of less than $500,000.
Capital taxes are calculated as a percentage of the value of machinery and equipment; this percentage varies depending on what type of machinery or equipment you have. Capital tax rates range from 2% for manufacturing equipment worth less than $50K to 20% for machinery worth more than $1 million.
There are also investment tax credits that you can claim when investing in particular types of projects: mining exploration, mining development, and mining reclamation projects qualify for a 25% credit; manufacturing assets qualify for an 18% credit; transportation assets qualify for an 18% credit (up from 15%); processing plants qualify for a 15% (up from 10%) credit; agricultural land improvements and other farm buildings allow for a 5% (down from 6%) credit; resource exploration expenditures qualify at 100%; mineral exploration expenditures qualify at 75%; resource development expenditures qualify at 50%; resource capacity building expenditures will receive no more than 30%.
Corporations may receive some relief by claiming certain tax credits: The Alberta Investment Tax Credit (AITC) allows you to reduce your federal or provincial corporate income tax bill by up to 35%; The Alberta Small Business Venture Capital Tax Credit lets small businesses reduce their national and local corporate income taxes by up to 20%.
British Columbia’s corporate tax rate is 12% for any business with an annual income of $500,000 or less. This rate applies to all companies under this threshold that are not considered small businesses (that is, those with an annual income of more than $500,000).
Small Businesses: The corporate tax rate for small businesses with an income of between $500,000 and $1 million is 5%. This rate applies only to those companies whose total assets are at most $15 million. Larger small businesses (those with purchases over $15 million) will be taxed at 11%.
Large Corporations: Large corporations are taxed more than smaller ones. For example, if your company has an annual income over $1 million but less than 3 million dollars, you will pay 11% on your profits; if you make 3-5 million dollars per year from your business activities in British Columbia, then the tax on those profits will be 12%; and if you earn over 5 million dollars annually from your company then the highest tax bracket kicks in 13%.
The corporate tax rate in Manitoba is 12%. The taxable income of a corporation is calculated as follows:
- Income from business activities in Manitoba
- Income from business activities outside of Manitoba
New Brunswick has a corporate income tax rate of 15%. The province also offers a small business deduction for eligible corporations. This is equal to the first $500,000 of active business income earned by an eligible corporation and can be carried forward until it is used. The provincial sales tax (PST) rate in New Brunswick is 13%, while taxes for properties are levied at a flat rate of 1.8%.
The following table outlines how these different types of taxes work:
Newfoundland and Labrador
- The corporate income tax rate in Newfoundland and Labrador is 12%.
- The minimum tax payable is 10%.
- The taxable income threshold is $500,000.
- There are several tax credits available to corporations in this province, including the following:
- Job creation credit: 10% of each new employee’s salary up to a maximum of $5,000 per year for five years;
- Research and development credit: 10% of eligible expenditures on research and development up to a maximum amount;
- Investment in machinery and equipment credit: 15% of the cost that exceeds $10,000 for each piece of equipment purchased or installed during your fiscal year
- Corporate tax rate: 13%
- Income tax rate: 15%
- Minimum corporate income tax rate: 10%
- Small business deduction rate: 10%
- The taxable capital limit is $500,000 for all corporations except those eligible for the small business deduction (SBD). The SBD reduces the taxable capital limit to $500,000 for a corporation.
Corporate tax rate: 15% Income tax rate: 16.5% Minimum corporate income tax rate: 11% Small business deduction rate: 8% Taxable capital limit is $500,000 for all corporations except those eligible to use the small business deduction (SBD). The SBD reduces the taxable capital limit to $500,000 for a corporation.
In Nova Scotia, the corporate tax rate is 16%. The small business tax rate is 10%, and the small business limit is $500,000.
- Corporate tax rate: 15%
- Small business corporations: The tax rate is 15% on taxable income earned in the year.
- Large corporations:
- The federal component of the corporate tax rate is 26%. This is imposed on taxable income earned in Canada.
- Provincial part (levied by the territory): 24%, which applies to taxable income earned throughout all provinces and territories (except Quebec).
The Ontario corporate tax rate is 11.5%, which means that for every dollar of profit you make, 11.5 cents will go to paying taxes, and you get to keep the rest.
It’s important to note that when calculating corporate taxes for Ontario, you need to use only your taxable income from the previous year and not any expense deductions or other costs.
For example: if you bought a machine in 2018 that cost $500,000 but claimed capital cost allowance on it last year, then your taxable income must be calculated without taking into account any capital cost allowance or interest expenses associated with the machine (because these were deducted last year).
Prince Edward Island
- Rate of tax: 14%
- Taxable income: up to $500,000
For Prince Edward Island, corporate taxes are calculated based on the corporation’s active income in PEI. If you set up your company in this province and make all or most of your money outside of PEI, you will have no obligation to pay corporate taxes. The only exception here is that if you have a permanent establishment within Prince Edward Island; this includes an office or storefront where clients can visit. In these cases, you will be considered to be earning active income from within the province and will be subject to corporate taxes.
The corporate tax rate in Quebec is 16.5%. This is the lowest rate among all Canadian provinces and territories, but it’s still higher than the federal corporate income tax rate of 15% (which applies across Canada).
As a province, Quebec has some unique regulations around businesses within its borders. For example, suppose you’re operating a business in Quebec that generates sales outside of the province or country. In that case, your corporation will be subject to two levels of taxation: one at the federal level and another at either one of two provincial rates: 8% on manufacturing activities or 16.5% for other companies (the latter being equal to what’s applied under both federal and local laws).
In Saskatchewan, the corporate tax rate is 11%. This rate applies to all corporations with a taxable income of $250,000. The provincial government also provides a temporary corporate tax credit for small businesses growing or expanding their operations.
The Small Business Venture Capital Tax Credit gives you credit if you invest in an eligible venture capital fund with your own money, which could be cash or shares of stock.
As you can see, many different corporation tax rates across Canada exist. If you’re looking for a new province to set up your business, consider Manitoba or Saskatchewan because of their low tax rates (and other benefits).