1 July 2026
Corporate Tax Rates in Canada Explained
Ask "how much tax does a corporation pay?" and the honest answer is: it depends on how much it earns, what kind of income it is, and which province it operates in. Understanding the corporate tax rate Canada applies means separating two very different numbers — the low small business rate on active income and the higher general rate — and then adding the provincial layer on top. This guide explains both, with worked examples. Rates change, so confirm current figures before you plan.
Two rates do most of the work
A Canadian-controlled private corporation (CCPC) pays a low combined rate on the first slice of active business income thanks to the small business deduction, and a higher combined rate on income above that limit. Everything else — provincial rates, passive income rules, and how you pay yourself — builds on that foundation.
Federal and BC corporate tax rates
The corporate tax rate Canada businesses actually pay is the federal rate plus the provincial rate for where they earn income. The table shows the common combined rates for a CCPC operating in British Columbia. Other provinces have similar structures with different provincial percentages.
| Type of income | Federal | BC | Combined |
|---|---|---|---|
| Active income under the SBD limit | 9% | 2% | ~11% |
| Active income above the SBD limit (general) | 15% | 12% | ~27% |
| Investment (passive) income | High rate, partly refundable | 12% | ~50%+ before refunds |
Figures are rounded and provided for general understanding. Confirm the exact current rates and thresholds for your year and province before relying on them.
The small business deduction, explained
The small business deduction (SBD) is why a profitable CCPC can pay roughly 11% in BC instead of 27%. It applies a reduced rate to the first $500,000 of active business income each year (the "business limit"). This low rate is designed to help companies keep more cash inside the business to reinvest and grow.
$500,000 business limit
The reduced rate applies to active business income up to this annual limit. Above it, income is taxed at the higher general rate.
Passive-income grind
When a CCPC earns more than $50,000 of passive investment income in a year, the business limit is gradually reduced, and is eliminated at $150,000 of passive income.
Sharing the limit
Associated corporations must share one $500,000 limit between them, so group structures need to allocate it deliberately.
Active vs passive
Only active business income qualifies. Investment income is taxed at a much higher rate, with a portion refundable when dividends are paid out.
Worked examples: how much tax on real profit
Numbers make this concrete. Assume a BC CCPC with only active business income and the full small business limit available. These examples use the approximate combined rates above; your actual result depends on your deductions, province, and structure.
| Taxable active income | Rate applied | Estimated corporate tax |
|---|---|---|
| $100,000 | ~11% (all under SBD) | ~$11,000 |
| $300,000 | ~11% (all under SBD) | ~$33,000 |
| $500,000 | ~11% (at the SBD limit) | ~$55,000 |
| $600,000 | ~11% on $500k + ~27% on $100k | ~$82,000 |
Corporate tax is not the final tax
A low corporate rate lets you defer personal tax, but you still pay personal tax when you take money out. How you pay yourself — salary versus dividends — changes your total tax, CPP contributions, and RRSP room. If you pay family members from the corporation, the tax on split income (TOSI) rules can apply the highest personal rate to dividends that do not meet an exclusion. Getting the mix right is where corporate tax planning earns its keep.
Keep income active
Structure operations so profit qualifies as active business income eligible for the small business rate.
Watch passive income
Large investment balances inside the company can grind the small business limit — a holding company sometimes helps.
Plan compensation
Balance salary and dividends to manage personal tax, CPP, and RRSP room across the year.
File it correctly
Accurate T2 preparation and filing makes sure you actually claim the rates and credits you qualify for.
Frequently asked questions
Not sure which rate your corporation really pays?
J. Wang Chartered Professional Accountant reviews your income mix, the corporate tax rate Canada applies to your situation, and how to pay yourself efficiently.
