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.