Small Business Taxes in Canada
Learn how Canadian business taxes work, including income tax, GST/HST, payroll, deductions and corporations.
The short version
- A Canadian small business pays tax one of two ways: on the owner's personal return (sole proprietor or partnership) or as a corporation.
- A Canadian-controlled private corporation pays 9% federal tax on its first $500,000 of active business income, plus a provincial rate (2.2% in Ontario since July 1, 2026, for example).
- Money only gets taxed again when it comes out to you, as salary or dividends.
- Every business also deals with GST/HST once sales pass $30,000, and payroll deductions once it has employees.
Small Business Taxes in Canada: The Four Taxes You'll Meet
Most small business owners think about income tax. CRA thinks about four things: income tax, GST/HST, payroll, and records. Miss any one and the other three don't save you.
1. Income Tax: Sole Proprietor or Corporation
Sole proprietors and partners report business profit on form T2125 with their personal return and pay tax at personal rates, plus both halves of CPP. It's simple and cheap to run, and the self-employed tax calculator shows what to set aside. Our guide to self-employed taxes in Canada covers it step by step.
Corporations file their own T2 return (see our list of Canadian tax forms) and pay corporate tax. For a Canadian-controlled private corporation (CCPC), the federal rate on the first $500,000 of active business income is 9%, thanks to the small business deduction; above that, the general federal rate is 15%. Each province adds its own rate: The rates in every province are on corporate tax rates, the low rate on the small business deduction, and the whole system on Canadian corporate tax explained. Whether to incorporate at all is on corporation vs sole proprietorship.
| Province or territory | Small business rate | General rate | Business limit |
|---|---|---|---|
| British Columbia | 2% | 12% | $500,000 |
| Manitoba | 0% | 12% | $500,000 |
| New Brunswick | 2.5% | 14% | $500,000 |
| Newfoundland and Labrador | 2% (from 2026) | 15% | $500,000 |
| Northwest Territories | 2% | 11.5% | $500,000 |
| Nova Scotia | 1.5% | 14% | $700,000 |
| Nunavut | 3% | 12% | $500,000 |
| Ontario | 2.2% (3.2% before July 1, 2026) | 11.5% | $500,000 |
| Prince Edward Island | 1% | 15% | $600,000 |
| Saskatchewan | 1% | 12% | $600,000 |
| Yukon | 0% | 12% | $500,000 |
Provincial rates and limits as published by CRA, checked October 2026, updated for Ontario's July 1, 2026 cut and Newfoundland and Labrador's 2026 budget cut, which CRA's table had not yet shown. Alberta and Quebec administer their own corporate income tax, so CRA's table doesn't list them; Alberta's rates are generally reported as 2% and 8%, but confirm with Alberta before relying on that. Business limits and rates can differ from the federal $500,000 limit; footnotes on CRA's page explain the exceptions.
The low corporate rate is a deferral, not a gift. When profit comes out to you as salary or dividends, it's taxed again personally, and the system is designed so the total ends up roughly similar. The win is leaving money in the company that you don't need to live on. How to take out what you do need is on salary vs dividends; the filing and payment dates are on corporate tax deadlines.
2. GST/HST
Once taxable sales pass $30,000 in one calendar quarter or four in a row, you must register, charge GST/HST and file returns. Below that it's optional. Read the GST/HST guide and the $30,000 small supplier rule, or run the GST/HST registration calculator.
3. Payroll
First, get a CRA business number when you need one. Hire anyone, including your spouse or your kids, and you become a payroll account holder (how to open a payroll account; year-end slips on T4 filing): you deduct income tax, CPP and EI from each pay, add the employer's share of CPP and EI, send it all to CRA on time, and issue T4 slips by the end of February. Late remittances carry penalties, and directors can be personally liable for unremitted payroll deductions.
4. Records
Keep invoices, receipts, bank statements, a mileage log and your sales records for six years from the end of the tax year they relate to. The full list is on business recordkeeping requirements. Keep a fixed-asset list too, for capital cost allowance. A business without records is a business whose expenses CRA gets to estimate. They rarely estimate in your favour. When the records are a mess, find the right tax help before CRA asks.
Corporate Filing and Payment Deadlines
- T2 return: within six months after the end of the corporation's tax year.
- Balance owing: generally two months after year-end; three months for many CCPCs claiming the small business deduction.
- GST/HST: depends on your filing period (monthly, quarterly or annual).
- Payroll remittances: usually by the 15th of the following month for most small employers.
Get your GST/HST set up right the first time
The GST/HST SmartFile runs both $30,000 tests on your sales, compares the quick method with the regular method, and fills in form GST74 if the quick method wins.
Small Business Tax Questions
What is the small business tax rate in Canada?
For a Canadian-controlled private corporation, 9% federally on the first $500,000 of active business income, plus the provincial small business rate, for example 2.2% in Ontario (since July 1, 2026) and 2% in British Columbia.
Should my small business incorporate?
Usually only when profits are well above what you need to live on, because the benefit is deferring tax on money left in the company. Incorporation adds yearly accounting and filing costs. A CPA can run the numbers for your situation.
When is a corporation's tax return due?
Within six months after the end of its tax year. The balance owing is generally due earlier: two or three months after year-end.
Do I need a business number?
You need one to register for GST/HST, run payroll or incorporate. Sole proprietors with no GST/HST or payroll don't need one just to report business income.
Sources: CRA, Corporation tax rates; When to file your corporation income tax return. Checked October 2026.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.