CCPC Small Business Deduction
by NewBiz
(Brampton, ON)
CCPCs are taxed favorably on active income through the small business deduction.
Hello:
We have started a small business incorporated in Ontario that will make a small profit of around CAD $20,000 this year. This is an import/wholesale oriented business and should qualify as Canadian Controlled Private Corporation.
I understand there is a tax deduction that applies to such companies and it comes out to be about CAD $32,000.
Does this mean that we will have $0 tax liability for the year for both the federal and provincial taxation?
Thanks
NewBiz
Hey There,
Corporate taxes are not my speciality ... but what I think you are referring to is the rate reduction called the small business deduction.
CCPCs are taxed favorably on active income through the small business deduction. The threshold for a CCPC is $500,000 federally.
This amount is eligible for an 11% tax rate as opposed to the 18% general corporate tax rate. This results in a maximum tax savings of $35,000 calculated as follows:
$500,000 x 18% = $90,000 in tax owing
$500,000 x 11% = $55,000 in tax owing
$90,000 - $55,000 = $35,000 in tax savings
If this is what you are referring to, don't confuse tax savings with tax owing. You will still owe federal taxes on the $20,000 net profit at 11% which equals a tax liability of $2,200.
Each province has their own corporate tax rate as well.
As of July 1, 2010, Ontario's rate is 4.5% for a qualifying CCPC. Prior to this the CCPC small business tax rate was 5.5%. The Ontario general corporate rate was 14% and reduced to 12% on July 1, 2010.
The Ontario general corporate rate is set to be reduced each July 1 for the period 2011-2013 by half a percentage a year.