Immigrants to Canada have access to one of the world's most competitive tax regimes for starting a new business. An important advantage enjoyed by business owners is a low tax rate applicable to active business income earned in Canada. This is called the "small business deduction".
Generally, business income earned in Canada is subject to a general federal tax rate of 15%. In addition, all provinces tax business income at rates ranging from 10 to 16%, depending on the province. As a result, the total combined rate may vary from 25 to 31%, depending on the province. The small business deduction reduces the tax rate applicable to the first $500,000 of business income from 15% to 10.5% at the federal level, and significant reductions also apply to rates charged by provinces.
For example, the combined federal/provincial general tax rate on corporate business income in Ontario is 26.5%, but the combined rate for income qualifying for the small business deduction is reduced to 15%. In Quebec, the rates are reduced from 26.9% to 18.5%. The reduced tax rates for small businesses by province are provided in the table below.
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Thus, in most cases, the regular rates on the amount of eligible business income are reduced in half for small companies carried on business in Canada. In comparison, in the Unites States a small business will generally pay corporate tax at the rate of approximately 40% and in France at the rate of approximately 35%.
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The content of this article reflects the personal insight of Attorney Colin Singer and needs no disclaimer