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The small business tax rate in Canada





Like many Canadians, you are in good company if you own a small business! According to the information from the Small Business Administration, nearly 99.9% of people in Canada own a small business. The Canadian Government maintains a competitive, fair, and efficient tax system for small businesses.

However, different businesses pay different tax rates depending on their structure, their income, and the deductions and credits available to them. However, your way of setting up your business also makes a big difference.

Usually, small business owners find it hard to spend too much time dealing with taxes; this is because they also have to handle the progress of their businesses. Well, if any company does not plan for the small business taxes they have to pay, it can endanger their business’s future.

If you are new to the business world, then you should look at the different tax rates that other businesses have to pay.

Importance of small business tax rates:

While owning a small business, making a profit for the first few years can be challenging. This is because of the expenses paid for the business setup, advertisement, and employee wages. Often these things mean that small businesses will be at a loss for up to year 3 of their revenue, so every penny saved counts and will help the business get through this difficult time.

Well, for small businesses, it is more difficult to secure funds, especially during the start-up period, as there are no guarantees of success, which can discourage investors. Despite the lack of funding, these companies are still liable for property and payroll taxes, even if there is no profit to pay them.

The small business tax rate is a great help with these issues. It allows the Government to take taxes away from companies, meaning there is no dispute over exemptions. Still, the lower rate gives the company a chance to make a profit (up to $500,000 in revenue) before charging a standard rate, which means there’s a little more money to play with.

Over the next few years, there will also be rising wages, and rising carbon and labor costs, meaning the extra money the industry can save will boost business sustainability.

Who is certified as a Small Business?

Well, to qualify for the small business tax rate, your business should fall within the following parameters:

  • Yearly earnings should be less than the amount of $500,000 of active business income.
  • Earning must be less than $50,000 in income from passive investments.
  • Your taxable capital should be less than $10 million.

If your business is extending and your taxable capital is between $10 and $15 million, then you could benefit from the small business tax rate.

Provincial tax rates:

Generally, provincial and territorial tax rates are divided into two types, including; higher rates

and lower rates.

  • Lower rates: The lower tax rate is applied to the income that is eligible for the federal small business deduction.
  • Higher rates: Higher tax rates are applied to all other incomes.

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