A small business in Canada has 1–99 paid employees. Medium-sized businesses have 100–499 paid employees, and large businesses have 500+ paid employees. This employee-based definition is set out in Innovation, Science and Economic Development Canada’s Key Small Business Statistics report (ISED KSBS PDF).
That answers the main question, but you will also see “small business” used in other systems. Canada uses different definitions because different agencies measure business size for different purposes. The correct definition is the one used by the program, form, or tax rule you’re dealing with.
SME size ladder (Canada):
- Micro: 1–4 paid employees
- Small: 1–99 paid employees
- Medium: 100–499 paid employees
- Large: 500+ paid employees
For a current overview, ISED also publishes an updated landing page for the series (Key Small Business Statistics page).
The 4 definitions of “small business” in Canada
Canada uses multiple definitions of “small business,” and each definition depends on the rule you’re trying to follow. The same business can be “small” in one system and not “small” in another because the measurement changes: employees vs revenue vs tax status vs taxable supplies.
Definition 1: Employee-count classification (SME sizing)
A small business has 1–99 paid employees. A medium-sized business has 100–499, and a large business has 500+, the same employee bands shown in ISED’s KSBS report (ISED KSBS PDF).
This definition is used for classification and benchmarking, especially in research and reporting contexts associated with Statistics Canada (for example, when firms are summarized by size category in business statistics).
A useful scale cue: ISED has reported that small businesses represent about 98% of employer businesses (see the KSBS series archive and snapshots linked from ISED’s SME statistics area, such as this KSBS snapshot PDF).
Definition 2: “Small Business Lens” (program/regulatory use)
For the Small Business Lens, a small business has fewer than 100 employees or less than $5 million in annual gross revenues. This definition is published in federal regulatory guidance by the Treasury Board of Canada Secretariat (Government of Canada: Small Business Lens policy).
That same policy also describes micro businesses as those with fewer than 5 employees or less than $30,000 in annual gross revenues (same source: Small Business Lens policy).
You see this lens when a grant, regulator, or federal form needs a consistent “burden/eligibility” definition that works across industries.
Definition 3: “Small business” for corporate tax purposes (SBD)
For corporate tax purposes, “small business” often refers to the small business deduction (SBD) framework for eligible Canadian-controlled private corporations (CCPCs), not employee count. The core starting reference is Canada Revenue Agency guidance on corporate tax rates (CRA: Corporation tax rates).
Key thresholds that matter in the SBD context:
- Federal general net corporate tax rate: 15% (CRA rates page: Corporation tax rates)
- Federal net small business rate (via SBD for eligible CCPCs): 9% (CRA rates page: Corporation tax rates)
- Business limit: commonly $500,000 (see CRA’s T2 guidance: T4012 – T2 Corporation Income Tax Guide)
For Ontario-specific corporate tax nuance, the CRA also maintains a provincial page for the Ontario small business deduction (CRA: Ontario small business deduction).
Definition 4: GST/HST “small supplier” ($30,000 threshold)
For GST/HST, “small supplier” means your taxable supplies stay at $30,000 or less, measured using calendar-quarter timing rules. The rule and timing mechanics are described by the CRA here: When to register for and start charging GST/HST.
Two timing outcomes matter:
- You stop being a small supplier the day you exceed $30,000 in a single calendar quarter (same source: When to register).
- You stop being a small supplier at the end of the month following the quarter when you exceed $30,000 over the previous four consecutive calendar quarters (same source: When to register).
For a tighter definition reference, CRA also has a dedicated page on this topic (CRA: Small suppliers).
Quick comparison table
These definitions use different measurements, so the same business can be “small” under one rule and not under another.
| Definition type | Who uses it | Measurement | Threshold (Canada) |
| Employee-count classification | SME sizing/benchmarking | Paid employees | Small: 1–99; Medium: 100–499; Large: 500+ |
| Small Business Lens | Programs / regulatory lens | Employees or gross revenue | <100 employees OR <$5M annual gross revenue |
| Corporate tax meaning (SBD) | Corporate tax filing | CCPC status + qualifying income + limits | 9% vs 15%; business limit commonly $500,000 |
| GST/HST small supplier | GST/HST registration | Taxable supplies + quarter timing | $30,000 (single quarter or last 4 consecutive quarters) |
How to tell which definition applies to you
Use the definition that matches the question you’re answering. This prevents the most common “wrong definition” mistakes.
- Use employee-count bands (1–99 / 100–499 / 500+) when you’re classifying business size for research, benchmarking, or general definition purposes (ISED: KSBS PDF).
- Use the Small Business Lens (<100 employees OR <$5M revenue) when a program or compliance document uses the policy definition (Government of Canada: Small Business Lens policy).
- Use CRA tax definitions when the question is about GST/HST registration, corporate tax rates, or the small business deduction (CRA: When to register for GST/HST; CRA: Corporation tax rates).
“Paid employees” is not the same as contractors
Employee-count definitions use paid employees, not independent contractors. That distinction resolves a common confusion: a business can have 0 employees and still have meaningful revenue because contractors are paid by invoice, not payroll.
A practical way to keep it clean:
- Employees: on payroll with employment deductions and employer obligations.
- Contractors: paid invoices; worker classification depends on facts and agreements, but they are not counted as payroll employees unless the relationship is employment.
GST/HST: the $30,000 threshold in real life
GST/HST registration becomes required once taxable supplies exceed $30,000, and the trigger depends on when the threshold is crossed. The official timing rules are listed by CRA here: When to register and start charging GST/HST.
Two common scenarios:
- One strong quarter: you exceeded $30,000 in a single calendar quarter, so you stop being a small supplier immediately and must start charging GST/HST on the supply that pushed you over the threshold.
- Slow build: you exceed $30,000 across the last four consecutive quarters (but not in one quarter), so the “no longer small supplier” date occurs at the end of the month following the quarter you crossed the threshold.
“Small business for tax purposes” usually means SBD, not headcount
For corporate tax, “small business” usually means the small business deduction framework for eligible CCPCs, not “under 100 employees.” The CRA outlines the federal net rates on its corporate rates page (CRA: Corporation tax rates), and the business limit details are explained in the T2 guide (CRA: T4012 guide).
If you want plain-language interpretation alongside the CRA rule pages, these professional summaries can help you understand the structure:
- A technical overview from PwC Canada (PwC Canada corporate tax summaries)
- A small-business-friendly explainer from Xero (Xero guide on Canadian small business tax rates)
Use those as an interpretation, and use CRA as the rulebook.
Examples (4 quick classifications)
Example 1: Owner-only independent contractor (0 employees, $42,000 taxable revenue)
- Employee-count bands: 0 paid employees (not an employer headcount band)
- GST/HST: registration depends on the $30,000 threshold timing (CRA: When to register)
- Corporate tax/SBD: not applicable unless incorporated and eligible as a CCPC
Example 2: 6-employee agency (6 paid employees, $600,000 revenue)
- Employee-count: small business (1–99) (ISED: KSBS PDF)
- Small Business Lens: small business by employees (<100) (Govt of Canada: Small Business Lens policy)
- GST/HST: likely registered if taxable supplies exceed $30,000 (confirm by quarter timing)
Example 3: 120-employee manufacturer (120 paid employees)
- Employee-count: medium-sized business (100–499) (ISED: KSBS PDF)
- Small Business Lens: not small by employees; some programs may still look at revenue if they use the lens definition
- GST/HST: usually registered (confirm taxable supplies timing)
Example 4: Incorporated CCPC with $650,000 active business income
- SBD: the $500,000 business limit applies in the framework; not all $650,000 is treated the same (CRA: T4012 guide)
- Employee-count: separate; determined by payroll headcount, not the tax rate you pay.
A quick credibility snapshot
If you want one scale stat without turning the page into a report:
- Business Development Bank of Canada notes that 3% of Canadian businesses have fewer than four employees (BDC: 10 things you didn’t know about Canadian SMEs).
- The Canadian Federation of Independent Business publishes research describing the role of SMEs in the economy and workforce (CFIB research).
- The Bank of Canada provides analytical notes that often use “fewer than 100 workers” as a key split in firm-size research (Bank of Canada staff analytical note).
Ontario accounting next steps
Once you know which “small business” definition applies, accounting becomes a checklist instead of guesswork, especially in Ontario. Your action items change based on the definition you’re working under:
- Employee-count definition (1–99 employees): set up payroll correctly, keep monthly bookkeeping consistent, and produce clean year-end financial statements.
- Small Business Lens (<100 employees OR <$5M revenue): keep headcount and revenue reporting consistent across applications and compliance documents (Govt of Canada: Small Business Lens policy).
- CRA definitions (GST/HST + corporate tax): track taxable supplies by month and by calendar quarter, and plan corporate income and filings with the SBD framework in mind when incorporated (CRA: When to register GST/HST; CRA: Corporation tax rates).
FAQ
How many employees does a small business have in Canada?
A small business has 1–99 paid employees. (ISED: KSBS PDF)
Is there a revenue limit for a small business in Canada?
Yes, in program contexts: the Small Business Lens uses <100 employees OR <$5 million in annual gross revenues. (Government of Canada: Small Business Lens policy)
When do I have to register for GST/HST?
Registration becomes required once taxable supplies exceed $30,000, measured by the single-quarter test or the last four consecutive calendar quarters test. (CRA: When to register)
What qualifies as a small business for tax purposes in Canada?
For corporate tax, “small business” often means the SBD framework for eligible CCPCs, with a $500,000 business limit and a 9% federal net small business rate. (CRA: T4012 guide; CRA: Corporation tax rates)
