The corporate tax rate is an essential consideration for all businesses operating in Canada, including those of your clients. As a CPA firm, it’s essential to thoroughly understand the corporate tax rate Canada and its implications to serve your clients better.
In this blog, we will provide an overview of the current corporate tax rate Canada details. We will also explore how the corporate tax rate affects CPA firms and their clients, the importance of understanding the tax rate, and the tax planning strategies CPA firms can use to optimize tax planning for their clients.
Overview of the Corporate Tax Rate in Canada
The corporate tax Canada is a tax levied on the profits of corporations operating in Canada. The federal government in Canada sets the base tax rates for corporations, which vary depending on the type of income earned.
For active business income in Canada not eligible for other incentives, as well as for investment income earned by a non-Canadian-controlled private corporation, a federal general rate reduction of 13.00% applies to the federal base rate of 28.00%.
However, the tax rate on personal services business income earned by a corporation is 33.00%. The federal rate applicable to investment income earned by Canadian-controlled private corporations (CCPCs) is 38.67% due to the additional 10.67% refundable federal income tax.
Impact on CPA Firms
Understanding the corporate tax rate is essential for CPA firms, as it affects their operations and their advice to their clients.
For example, an increase in the corporate tax rate may result in a decline in profitability for a client, which can lead to significant implications for their business operations. Understanding the tax rate can also help CPA firms provide better tax planning and advisory services to their clients, which is crucial for their financial success.
Furthermore, as a CPA firm, it is crucial to understand how the corporate tax rate affects specific industries, such as oil and gas, mining, and manufacturing. These industries may have unique tax incentives and deductions available to them, which can be leveraged to reduce their tax burden.
Strategies for Optimizing Tax Planning for Clients
You can help your clients optimize their tax planning by implementing various tax planning strategies. One such strategy is to take advantage of tax incentives and deductions.
For example, several tax incentives are available to corporations, such as the Scientific Research and Experimental Development (SR&ED) tax credit and the accelerated capital cost allowance (CCA) for certain assets. Identifying and utilizing these tax incentives can help your clients reduce their tax burden.
Another strategy is to structure your client’s business operations efficiently.
For instance, a corporation may benefit from incorporating multiple entities to split income and take advantage of lower tax rates available for smaller corporations. You can also advise your clients on tax-efficient ways to distribute profits, such as through dividends or salaries.
Federal Corporate Income Tax Rate Canada
As a CPA firm in Canada, it is essential to have an understanding of the federal income tax rates applicable for a 12-month taxation year ending on 31 December 2022. The following rates apply for non-resident corporations to business income attributable to a permanent establishment (PE) in Canada. For a 12-month taxation year ending on December 31, 2022, the federal tax rate for corporations is 15%. This rate is applicable after deducting provincial abatement and any general rate reduction or manufacturing and processing deduction.
Basic rate: 38.0%
Less: Provincial abatement (1): (10.0%)
Federal rate: 28.0%
Less: General rate reduction or manufacturing and processing deduction (2): (13.0%)
Net federal tax rate (3, 4): 15.0%
Note that provincial or territorial taxes apply in addition to federal taxes, and provincial and territorial tax rates may vary.
Canadian-Controlled Private Corporations (CCPCs)
For small CCPCs, the net federal tax rate is levied on active business income above CAD 500,000. A federal rate of 9% applies to the first CAD 500,000 of active business income.
Investment income (other than most dividends) of CCPCs is subject to the federal rate of 28%, in addition to a refundable federal tax of 10⅔%, for a total federal rate of 38⅔%.
Access to the reduced federal tax rate on active business income of 9% is restricted for CCPCs that earn passive investment income exceeding CAD 50,000 in the previous taxation year and are unavailable at CAD 150,000 of investment income.
Zero-Emission Technology Manufacturers
Recently enacted legislation temporarily reduces CIT rates on eligible income from zero-emission technology manufacturing and processing activities by 50% (lowering the general rate to 7.5% and the CCPC rate to 4.5%) for 2022 to 2028, then gradually raise these rates back to status quo by 2032.
To qualify for the lower tax rates, at least 10% of the company’s gross revenues from all active businesses carried on in Canada must be derived from eligible zero-emission technology manufacturing and processing activities.
Global Minimum Tax and the New International Tax Framework
137 OECD Inclusive Framework (IF) members, including Canada, have agreed to the October 2021 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.
This proposal includes fundamental changes to the international corporate tax system, providing new taxing rights to countries where the MNE’s customers are located and adopting a global minimum effective tax rate of 15%.
Pillar One reallocated some portion of the profits of large MNEs to countries where the MNE’s customers are located, and Pillar Two enacted a minimum effective tax rate of 15% on profits earned by MNEs in each jurisdiction.
Banks and Life Insurers
Draft legislation levies on banks and life insurers and their related financial institutions:
For the 2022 taxation year, a one-time 15% tax, based on the average of the corporation’s taxable income for taxation years ending in 2020 and 2021.
A CAD 1 billion taxable income exemption is available to be shared among group members.
The tax liability is imposed in the 2022 taxation year but is payable in equal amounts over five years (i.e. included in the 2022 through 2026 federal tax filings), and the amount required to be payable for that year will reduce the Part VI Financial Institutions Capital Tax liability (see Federal capital taxes in the Other taxes section) for that same year.
For taxation years ending after 7 April 2022 (pro-rated for a taxation year that includes 7 April 2022), an additional 1.5% income tax. A CAD 100 million taxable income exemption is available to be shared among group members.
Small Business Deduction (SBD)
The small business deduction (SBD) is a tax incentive that reduces the amount of federal tax that eligible small businesses have to pay.
As of January 15, 2023, the federal SBD rate is 9.00% for income eligible for SBD (generally up to $500,000), while the general rate for non-SBD income is 15.00%. It is important to note that the federal SBD is reduced if taxable capital employed in Canada exceeds $10 million in the preceding taxation year and is eliminated when taxable capital exceeds $15 million.
Provincial corporate tax rates are additional corporate tax rates that businesses in Canada need to pay. These tax rates depend on the business’s location and vary between Canada’s different provinces and territories.
Federal and provincial tax rates for each province
As of January 15, 2023, the combined federal and provincial tax rates for each province are as follows:
- Newfoundland and Labrador: 12.00% for SBD income, 30.00% for M&P income not eligible for federal SBD (greater than $500,000), and 22.50% for general income not eligible for SBD (non-M&P income).
- Prince Edward Island: 10.00% for SBD income, 31.00% for M&P income not eligible for federal SBD (greater than $500,000), and 23.50% for general income not eligible for SBD (non-M&P income).
- Nova Scotia: 11.50% for SBD income, 29.00% for M&P income not eligible for federal SBD (greater than $500,000), and 21.50% for general income not eligible for SBD (non-M&P income).
- New Brunswick: 11.50% for SBD income, 29.00% for M&P income not eligible for federal SBD (greater than $500,000), and 21.50% for general income not eligible for SBD (non-M&P income).
- Quebec: 12.206% for SBD income, 26.50% for M&P income not eligible for federal SBD (greater than $500,000), and 19.00% for general income not eligible for SBD (non-M&P income).
- Ontario: 12.20% for SBD income, 25.00% for M&P income not eligible for federal SBD (greater than $500,000), and 17.50% for general income not eligible for SBD (non-M&P income).
- Manitoba: 9.00%
Businesses must understand and comply with federal and provincial tax requirements to avoid penalties and legal issues.
Information on Federal and Provincial/Territorial Non-Refundable Tax Credit Rates and Amounts for 2023
Federal and Provincial/Territorial Non-Refundable Tax Credit Rates and Amounts for 2023
| Federal. | B.C. Corporate Tax Rate | Alberta Corporate Tax Rate | Saskatchewan Corporate Tax Rate | Manitoba Corporate Tax Rate | |
| Tax rate applied to credits | 15.00% | 5.06% | 10.00% | 10.50% | 10.80% |
| Indexation factor | 6.3% | 6.0% | 6.0% | 6.3% | 7.0% |
| Basic personal | $15,000 | $11,981 | $21,003 | $17,661 | $10,855 |
| Spousal/partner and wholly dependant person
Net income threshold |
15,000— | 10,2591,026 | 21,003— | 17,6611,767 | 9,134— |
| Dependants 18 and over and infirm
Net income threshold |
SeeCaregiver | SeeCaregiver | 12,1588,032 | 10,4057,383 | 3,6055,115 |
| Caregiver
Net income threshold |
7,999
18,783 |
5,243
17,742 |
12,158
19,331 |
10,405
17,770 |
3,605
12,312 |
| Child (max) | — | — | — | 6,700 | — |
| Adoption (max) | 18,210 | 18,159 | 14,365 | — | 10,000 |
| Disability | 9,428 | 8,986 | 16,201 | 10,405 | 6,180 |
| Disability supplement | 5,500 | 5,243 | 12,158 | 10,405 | 3,605 |
| Pension (max) | 2,000 | 1,000 | 1,617 | 1,000 | 1,000 |
| Age 65 and over
Net income threshold |
8,396
42,335 |
5,373
39,994 |
5,853
43,570 |
5,380
40,051 |
3,728
27,749 |
| Medical expense
threshold |
2,635 | 2,491 | 2,714 | 2,493 | 1,728 |
| Employment | 1,368 | — | — | — | — |
| Canada Pension Plan
(max) |
3,754 | 3,754 | 3,754 | 3,754 | 3,754 |
| Employment Insurance
(max) |
1,002 | 1,002 | 1,002 | 1,002 | 1,002 |
| Children’s fitness (max)
Children’s arts (max) Their wellness (max) |
—
— — |
—
— — |
—
— — |
Ref.
Ref. — |
500
500 — |
| Home buyers (max) | 10,000 | — | — | 10,000 | — |
| Home accessibility (max) | 20,000 | Ref. | — | 10,000 | — |
| Tuition fees | Yes | Yes | No | No | Yes |
| Education
Full time—per month Part time—per month |
— — | — — | — — | — — | 400120 |
| Credit rate on first $200
Credit rate on balance |
15.00%29.00/
33.00% |
5.06%16.80/
20.50% |
10.00%21.00% | 10.50%14.50% | 10.80%17.40% |
Refer to notes on the following pages.
Ref. = indicates refundable credit – see applicable note.
Other provinces’ Corporate Tax Rate Canada
This information provides a detailed overview of federal and provincial/territorial non-refundable tax credit rates and amounts for the year 2023. It includes calculating tax credits, indexation factors, and additional tax credits provided by certain jurisdictions. The information is current as of December 31, 2022.
Key Points
The table shows the dollar amounts of federal, provincial, and territorial non-refundable tax credits for 2023 (except for Quebec). Each dollar amount must be multiplied by the tax rate indicated, which is the lowest tax rate applicable in the particular jurisdiction.
Tax Rates and Application
- Income earned by the taxpayer or dependant, as applicable, more than the net income thresholds shown in the table serves to reduce the availability of the credit on a dollar-for-dollar basis.
- Ontario’s tax rate that applies to credits is 7.88% (5.05% x 156%) for an individual who is subject to the 56% surtax. Prince Edward Island’s tax rate that applies to credits is 10.78% (9.80% x 110%) for an individual who is subject to the 10% surtax.
- The indexation factors indicated in the table are used to index the credits in each jurisdiction.
Nova Scotia provides an additional basic personal amount of $3,000, where a taxpayer’s income is $25,000 or less. This amount will decrease proportionately if the taxpayer’s income is between $25,000 and $75,000. - Prince Edward Island increased the province’s basic personal amount to $12,000 (from $11,250), effective January 1, 2023.
- The federal basic personal amount increased to $15,000 (from $14,398) for individuals with a net income of $165,430 or less in 2023. For individuals with a net income over $235,675 in 2023, the basic personal amount increased to $13,521 (from $12,719).
Married/Partner and Wholly Dependant Credits
The married/partner and wholly dependant person amounts are calculated by subtracting the spouse/partner and wholly dependant’s net income from the maximum amount.
Additional Credits for Spouse/Partner and Wholly Dependents
Nova Scotia provides an additional non-refundable tax credit for a spouse/partner and wholly dependent person in the year of $3,000, where a taxpayer’s income is $25,000 or less. This amount will decrease proportionately if the taxpayer’s income is between $25,000 and $75,000.
The caregiver credit is available to taxpayers who care for a related dependant. The dependant must be over 18 and infirm, or over 65 in the case of a parent or grandparent (except for federal, British Columbia, Ontario, and Yukon purposes, where the credit is not available in respect of non-infirm dependants).
Medical Expense Credit
The medical expense credit is calculated based on qualified medical expenses that exceed 3% of net income or the threshold shown in the table. Ontario provides a maximum allowable medical expense for other eligible dependents.
Federal Employment Credit
The federal employment credit may be claimed by individuals based on the lesser of the amount indicated in the table and the amount of employment income earned in the year. Yukon also provides the non-refundable federal employment credit.
Self-Employed Individuals
Self-employed individuals are subject to a higher Canada or Quebec Pension Plan contribution rate and can generally deduct a portion of their contributions in calculating net income. The balance is claimed as a non-refundable tax credit.
Tax Credits for Physical and Artistic Activities
Taxpayers in Manitoba, Yukon, Saskatchewan, Newfoundland, and Labrador, and Nova Scotia can claim tax credits for physical and artistic activities for children and young adults.
Tax Credits for Artistic, Cultural, Recreational, or Developmental Programs
Taxpayers in Manitoba, Yukon, and Saskatchewan can claim tax credits for eligible programs of artistic, cultural, recreational, or developmental activity for children under the age of 16 (or 18 if eligible for the disability tax credit) at the beginning of the year.
Note: The information provided is current as of December 31, 2022. Federal and provincial/territorial tax credit rates and amounts are subject to change each year.
Takeaway! : Corporate Tax Rate in Canada
As a CPA firm, it’s essential to stay up-to-date with changes to the corporate tax rate Canada and implement effective tax planning strategies to help clients save money and maximize their financial potential. However, we understand that managing your clients’ tax affairs can be challenging and time-consuming, which is where Unison Globus comes in.
Unison Globus is an outsourcing accounting firm that specializes in providing high-quality tax preparation, accounting, and bookkeeping services to CPA firms in Canada. Our team of seasoned professionals is well-versed in the latest tax laws and regulations, enabling us to provide accurate and reliable tax services to our clients.
By outsourcing your clients’ tax preparation and accounting needs to Unison Globus, you can free up your time to focus on providing more strategic advisory services to your clients. Plus, our cost-effective services can help you save money and increase your bottom line.
So, if you’re looking for a reliable and experienced outsourcing accounting firm to help you manage your clients’ tax affairs, look no further than Unison Globus. Get in touch with us today and explore the collaboration possibilities. Visit www.unisonglobus.ca to learn more about our outsourcing services and how we can help you grow your CPA firm.
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