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Small business tax rate going down: more money for your business

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Nearly 80% of small business owners have identified the total tax burden as their top concern. They have also said the reduction of the small business corporate tax rate would be one of the most effective measures to help strengthen their business performance.

From CFIB’s beginning in 1971, we have fought for tax fairness for small businesses. Today, as the owner of a Canadian-controlled private corporation, you can benefit from a lower corporate tax rate for your business.

Small business rate going down, but with new restrictions

On October 16, 2017, the federal government announced that they would lower the small business tax rate from 10.5% to 9%, as promised in their election platform. They reaffirmed this reduction in the 2018 budget.

DateRate
January 1, 201710.5%
January 1, 201810%
January 1, 20199%

However, they are also limiting access to the rate for some businesses. If your business earns with more than $50,000 in annual income from passive investments, you will start to lose access to the small business tax rate. See our post on the passive investment tax changes for more information.

The rate going from 10.5% to 9% will mean annual savings of up to $7,500 per year for your business. CFIB has been instrumental in putting pressure on the government to lower the rate!

What is small business tax rate?

The federal small business tax rate, also called Small Business Deduction (SBD), is applied on the first $500,000 of active business income, if your taxable capital is less than $15 million. If your firm has taxable capital between $10 million and $15 million in active income during a year, you are still eligible, but access to the small business tax rate will be proportionately reduced.

Businesses that do not qualify for the SBD are taxed at the general business rate, which is 15% at the federal level.

 

Taxable capital for your businessYour tax rate
Less than $10 million
  • First $500,000 of active business income: small business tax rate
  • Over $500,000: general business rate (15%)
$10-$15 million
  • You can benefit from the small business tax rate on a portion of your income, which gets proportionally smaller as the amount of taxable capital goes up.
  • The rest is taxed at the general business rate (15%)
More than $15 million
  • General business rate (15%)

 

For more on tax rates and where your business would land, see the federal government’s provincial breakdown (not available in Alberta and Quebec).

How we got here

CFIB has spent decades fighting for fair taxes for business owners like you. The small business tax rate was introduced thanks to our inaugural fight in the 1970s, and we have kept the pressure on governments to keep the rate low.

In 2008, we got the rate lowered from 12% to 11% and have fought off repeated calls from other organizations for the rate to be eliminated completely.

In 2015, we secured promises from all three major federal parties to reduce the rate from 11% to 9%. We are glad to see that the government has reinstated this promise, after dropping it in the 2016 budget.

Why do small businesses need a lower tax rate?

  • It is harder and more expensive for your small business to access financing. Allowing you to retain more earnings can help you finance your company’s growth.
  • The costs associated with government regulations, particularly tax compliance, are disproportionately higher for SMEs.
  • SMEs bear a heavier burden in terms of property taxes and payroll taxes (CPP, EI, etc.) because these taxes need to be paid regardless of whether you turn a profit.

 

You are also facing years of rising costs due to payroll tax increases (EI increases in 2018 and CPP increases for seven years starting in 2019) new carbon pricing measures, and increased labour costs, all of which will hurt your ability to remain competitive. The 9% rate will go a long way to alleviate some of this burden coming your way.