Small Business Deduction

Income Tax Act subsection 125

The small business deduction is available on active business income for a Canadian Controlled Private Corporation. It provides a reduction in the corporate tax rate up to the federal limit of $500,000.

What the above means is if you are earning active business income as a CCPC then your first $500,000 of net income is taxed at a reduced rate. This makes it easier to amass funds in a corporation and is a large reason many Canadians incorporate their businesses.

Description Income Tax Act 2016 2017 2018 2019
Part I Tax
  1. 123(1)
38% 38% 38% 38%
Federal Tax Reduction
  1. 124(1)
-10% -10% -10% -10%
Small Business Deduction
  1. 125(1.1)
-17% -17.5% -18.5% -19%
Reduced Rate 10.5% 10% 9.5% 9%

 

CRA Resources

IT-73R6 Small Business Deduction

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