Small Business Tax Rates in Canada

As a small business owner, understanding your tax obligations and the available tax credits and deductions can help you plan your finances more effectively and potentially save you money. In Canada, the tax system is divided between the federal government and the provinces and territories, each of which sets its own tax rates and rules.

This brief article will provide an overview of small business tax rates in Canada and help you understand how to determine which tax rate applies to your business. It will also discuss deductions and credits that may be available to you.

Small Business Tax Rates in Canada

In Canada, small businesses are subject to a lower federal tax rate than larger corporations. The federal small business tax rate is currently 9%, which applies to the first $500,000 of active business income. This rate is significantly lower than the general corporate tax rate of 15%.

Keep in mind that the small business tax rate is just the federal rate, and each province or territory can also have their own small business tax rate, which will be applied to the income earned in that province/territory.

Provincial and territorial small business tax rates vary across Canada. For example, Ontario has a small business tax rate of 3.5%, while British Columbia's small business tax rate is 2.5%. In Quebec, the small business tax rate is 11.9% and in Alberta, the small business tax rate is 3%.

It's important to note that these rates can change over time, so small business owners should stay informed about the current rates in their area.

Small Business Deductions and Credits

In addition to the lower tax rates, small businesses in Canada can also claim various deductions and credits to reduce their tax liability. Some common deductions for small businesses include:

·      Expenses related to the business, such as rent, utilities, and office supplies

·      Capital expenses, such as equipment and machinery

·      Business travel expenses

·      Employment expenses, such as salaries and wages

Small businesses can also claim various credits to reduce their taxes. Some examples of credits that small businesses can claim include:

·      The Scientific Research and Experimental Development (SR&ED) tax credit

·      The Apprentice Mechanic Tools Deduction

·      The Canada Employment Credit

It's important to note that there may be restrictions and requirements to claim these deductions and credits and it's always best to consult a professional to understand which of the deductions and credits you can claim.

Summary

Small business tax rates in Canada can be complex, but with a good understanding of the federal and provincial rates, as well as the deductions and credits that are available, small business owners can plan for their taxes and minimize their tax liability. Always consult with a professional to assist you in your tax planning as they will be able to provide you with information and suggestions tailored to your specific business.

Black Forest Virtual can help you get your books organized for tax time, so your accountant can easily see and apply credits, expenses, and deductions where possible. Plus, having organized books usually saves you money with your accounting firm, too!

Send us a message to learn more about how good, organized books can save you money at tax time.