A Canadian small business pays corporate income tax at a combined rate: the net federal small business rate (9%) plus the provincial/territorial small business rate, on eligible active business income up to the business limit. The combined small business corporate tax rate varies by province, which is why “9%” is not the full answer. For current combined rates by province, see the CCPC rate tables from KPMG Canada (PDF).
This guide explains who qualifies, what counts as eligible income, and how to calculate tax payable using federal and provincial rates (including the common “tax on $30,000 / $70,000” examples).
Quick answer: What tax rate does a small business pay in Canada?
For a qualifying CCPC, the small business corporate income tax rate is: 9% federal + your province/territory’s small business corporate rate.
- Federal corporate rates are summarized by the CRA here: Corporation tax rates (CRA).
- Combined federal + provincial rates (by province/territory) are shown in KPMG’s CCPC combined rate table (PDF).
If you are not incorporated, you do not pay corporate tax rates; you pay personal income tax on business income (sole proprietor/partnership rules).
Step 1: Confirm your business structure (corporation vs sole proprietor)
You only use “CCPC corporate tax rates” if your business is a corporation filing a T2 return.
- Corporation (T2 path): pays corporate tax at federal + provincial rates and may qualify for the Small Business Deduction (SBD).
- Sole proprietor or partnership (T1 path): business income is taxed at the owner’s personal tax rates, not corporate rates.
This one distinction eliminates most confusion behind the search query “how much tax does a small business pay in Canada?”
Step 2: Check if your corporation qualifies for the Small Business Deduction (SBD)
The SBD is what reduces the federal corporate tax rate from 15% to 9% on eligible active business income for qualifying CCPCs. The CRA explains how the SBD is calculated and what limits apply here:
- Small business deduction rules (CRA)
- T2 Corporation Income Tax Guide: Small business deduction (CRA)
A CCPC typically needs all 3 gates:
2.1 You are a CCPC
A Canadian-controlled private corporation (CCPC) is a private corporation resident in Canada that meets CCPC control requirements under the Income Tax Act (general concept).
2.2 Your income is eligible for “active business income” (ABI)
Only income from an active business carried on in Canada is eligible for the SBD. The CRA’s T2 guide explains what is generally treated as active business income and what is not (for example, specified investment business income).
2.3 You are under the business limit (usually $500,000)
For the federal SBD, the business limit is $500,000, and it must be allocated among associated corporations.
Associated corporation example:
- Corp A eligible ABI: $300,000
- Corp B eligible ABI: $250,000
- Combined eligible ABI: $550,000
- Group business limit: $500,000
Result: $500,000 is taxed at the small business rate; $50,000 is taxed at the general corporate rate.
Step 3: the 2 main rules that reduce or remove your small business limit
Even if you are a CCPC, your access to the small business rate can shrink in two common ways.
A) Taxable capital grind: $10M to $15M
If the combined taxable capital employed in Canada of the CCPC and associated corporations is between $10 million and $15 million, the business limit is reduced on a straight-line basis.
B) Passive investment income grind: $50,000 to $150,000
If adjusted aggregate investment income (AAII) is between $50,000 and $150,000, the business limit is reduced on a straight-line basis (and can be eliminated). The CRA provides the formula and numeric examples.
For a plain-language explanation (with charts), you can also see:
Step 4: Understand why the federal rate is 9% (small business) or 15% (general)
The CRA’s federal corporate tax rate stack is the cleanest reference:
- Basic Part I rate is 38%
- After federal tax abatement: 28%
- After general tax reduction: net 15% (general corporate rate)
- The SBD reduces tax further for qualifying CCPC income (producing the 9% small business rate outcome)
Source: CRA corporate tax rates and CRA T2 guide (SBD explanation).
Key takeaway: “9%” is federal only, and only for qualifying CCPC income.
Step 5: Add your provincial/territorial rate (this is where the combined rate comes from)
Combined corporate rate (simplified) = net federal rate + provincial/territorial rate.
To see the combined small business rates for 2025–2026 (by province/territory), use a reputable combined-rate table such as:
- KPMG CCPC combined corporate tax rate table (PDF)
- An additional professional reference is: PwC Canada Tax Summaries (corporate income tax)
Ontario example (provincial portion)
Ontario’s small business deduction reduces the Ontario corporate tax rate on qualifying small business income to 3.2% (Ontario SBD rate mechanics are explained by CRA and the Province of Ontario).
Mini calculator: estimate corporate tax payable in 60 seconds
Inputs
- Province/territory
- Taxable income (TI)
- Available business limit (BL) (default $500,000, reduced if shared/ground down)
Steps
- TI_under = min(TI, BL)
- TI_over = max(TI − BL, 0)
Output
- Estimated tax payable = (TI_under × combined small business rate) + (TI_over × combined general corporate rate)
For the combined rate values, use the 2025–2026 combined table:
Worked examples (Ontario)
Example A: CCPC in Ontario with $100,000 taxable income (under the limit)
- TI = $100,000
- BL = $500,000
- Combined small business rate (Ontario) = 2%
Source for combined rate: KPMG CCPC table (PDF)
Estimated corporate tax = $100,000 × 12.2% = $12,200
Example B: CCPC in Ontario with $600,000 taxable income (blended result)
- TI = $600,000
- BL = $500,000
- First $500,000 at 2%
- Remaining $100,000 at the combined general corporate rate (Ontario), shown in the same table
Source: KPMG CCPC table (PDF)
Estimated tax = ($500,000 × 12.2%) + ($100,000 × general rate) = blended total
Example C: “How much tax on $30,000?”
This question has two different answers.
If you are an incorporated CCPC (Ontario example):
- TI = $30,000
- Rate = 2%
- Estimated corporate tax = $3,660
Rate source: KPMG CCPC table (PDF)
If you are a sole proprietor:
That $30,000 is taxed under personal tax rules, not corporate rates.
Example D: “How much tax on $70,000?”
If you are an incorporated CCPC (Ontario example):
- TI = $70,000
- Rate = 2%
- Estimated corporate tax = $8,540
Rate source: KPMG CCPC table (PDF)
Common misunderstandings (and the fast fixes)
“Small businesses pay 9% in Canada.”
9% is the net federal small business rate for qualifying CCPC income; it’s not the combined rate. Federal rates are on the CRA site, and combined rates are shown in major tax tables.
“Corporate tax is based on sales.”
Corporate income tax is calculated on taxable income, not sales.
“GST/HST is part of small business income tax.”
GST/HST is a sales tax, not income tax. Registration rules are based on the $30,000 small supplier threshold, and the CRA explains exactly when registration is required.
Provincial administration note (Québec and Alberta)
Most provincial/territorial corporate tax is administered by the CRA, except Québec and Alberta.
For Québec’s separate administration, a helpful reference is:
For Alberta’s tax administration structure:
General information only, not tax advice. Corporate tax outcomes depend on eligibility, associated corporations, taxable income calculations, and province-specific details.
