The Small Business Deduction is an income tax deduction for qualifying Canadian businesses. To qualify the business must be a Canadian-controlled private corporation (CCPC) throughout a given tax year.
The Small Business Deduction reduces the Part I tax that a corporation would otherwise have to pay. As of January 1, 2008 the Small Business Deduction rate is 17%; however, the 2015 Federal Budget included an increase for the Small Business deduction by 0.5% per year, for tax years from 2016 (rate will be 17.5%) to 2019 (rate will be 19%).
The Small Business Deduction applies to the first $500,000 of income for a corporation.
The allowable Small Business Deduction amount considers the following:
- the income from active business carried on in Canada;
- the taxable income;
- the business limit; or
- the reduced business limit.
The Small Business Deduction is multipled by the least of the amounts noted above to determine the allowable amount. The maximum allowable business limit for a corporation that is not associated with any other corporation is $500,000.
We strongly recommend that your corporate tax return is prepared by a Chartered Accountant, who would provide assistance with the Small Business Deduction calculation during the preparation of your T2 tax return. Your Small Business Accountant Toronto can also help with strategic tax planning to reduce your corporate tax bill.