Small Business Deduction | Chartered AccountantsThe 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.

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