The Ultimate Guide to Corporate Tax in Canada for 2022
By Arthur Dubois | Published on 27 Nov 2022
Table of Contents
Corporate income tax isn’t easy to understand. As a result, we made this clear guide to the most mportant corporate income tax questions.
Concurrently, we also give insight into important areas like whether to hire an accounting firm; federal, provincial, and territorial corporate tax rates; corporate income tax returns and tax payment deadlines; as well as the financial penalties for missing deadlines.
Types of business ownership
Generally, entrepreneurs and business owners can choose to either operate their businesses as sole proprietorships, partnerships, or corporations. While sole proprietorships and partnerships offer greater ease and fewer administrative burdens, operating a business under a corporation offers less risk and greater tax advantages.
If a sole proprietorship or partnership is sued, both the business and its owners are liable for civil judgments, and the owner’s personal assets can be seized and sold to cover liabilities.
There is little to no legal difference between owners and their businesses. Although sole proprietorships and partnerships can carry business insurance, their personal assets will always be at risk, even if that risk is small.
Conversely, corporations are their own legal entity. The owner(s) of a corporation is not personally responsible for the corporation’s debts or civil judgments.
Maintaining a corporation requires greater government, legal and accounting responsibilities. However, the limited liability and tax advantages result in many business owners operating their business as a corporation.
Should you hire an accounting firm?
If the owner or an employee of a corporation has some form of accounting education, training, or experience, there are many free Canadian tax software options they can use for a corporate income tax return. Otherwise, hiring an accounting firm to help file its corporate income tax is a good investment.
Not only will an accounting firm be able to review the company’s books and make any required corrections, but they can also provide tax savings strategies for the corporation to consider.
Also, small businesses operating as a corporation might hesitate to spend their precious cash hiring a Chartered Accountant (CA), now known as a Chartered Professional Accountant (CPA), and think this is something they will do when the corporation is earning more income. However, hiring an accountant or accounting firm early will often cost less than anticipated, save money in the long run, and will give the owners of the corporation peace of mind knowing a professional is ensuring its accounting and tax house is in order.
Accounting firm fees for corporate income tax returns
Generally, how much an accounting firm will charge for completing a corporation’s income tax return, also known as a T2 return, will depend on a few factors. Some of these factors will include:
- The completeness and accuracy of the bookkeeping
- Number of transactions throughout the tax year
- The industry of the corporation
- Whether financial statements are provided
- and if the T2 return is being completed by a Chartered Professional Accountant (CPA).
An approximate cost range for completing a corporation’s T2 return will be between $750 to $3,000.
Furthermore, accounting firms generally offer a free discovery call with business owners to help determine what they need and an estimated cost to complete the required work. Discovery calls also allow business owners to interview accountants and accounting firms. It is recommended business owners interview multiple accounting firms and research what others are saying about them online before deciding who to engage.
Who pays corporate income tax
With the exception of tax-exempt Crown corporations, Hutterite colonies, and registered charities, all corporations considered ‘resident’ in Canada are required to file a corporate income tax return. However, corporations operating in Canada that are not Canadian corporations are considered ‘resident’ for corporate income tax purposes.
How to pay corporate income tax
Corporations can pay their corporate income tax through online banking, credit cards, in person at a financial institution or by cheque.
How much income tax will a corporation pay?
Corporations are required to pay both a federal and provincial or territorial income tax. However, the corporate tax rate for each jurisdiction will be different depending on the size of the business, industry, and if it qualifies for government deductions.
Federal corporate income tax
At the federal level, the baseline corporate tax rate is 38% and this can be reduced to 28% through the federal tax abatement if the corporation’s income was earned in Canada. The federal government further offers Canadian-controlled private corporations (CCPCs) that qualify a small business deduction of 19%, resulting in a total federal income rate of 9%.
However, the small business deduction is only available on the first $500,000 of income. Any corporate income after $500,000 will not be able to use the small business deduction.
Provincial corporate income tax
The Canada Revenue Agency (CRA) administers the corporate income tax systems for all provinces and territories, with the exception of Alberta and Quebec which administer their own. However, this means that corporations that earn income in these provinces have to file a separate provincial income tax return in addition to their federal income tax return.
Combined federal, provincial and territorial corporate income tax rates
Below are the estimated federal and provincial corporate income tax rates. Determining corporate income tax rates is complicated and it is highly recommended corporations consult a CPA or accounting firm to determine its corporate tax rates.
Newfoundland and Labrador
Firstly, Newfoundland and Labrador’s (NFLD) corporate income tax rate is 15% that is reduced to 3% on the first $500,000 for small businesses that qualify for the federal government’s small business deduction.
| Lower rate | Higher rate | Business limit | |
| Provincial | 3% | 15% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 12.00% | 43.00% |
Nova Scotia
Nova Scotia’s corporate income tax rate is 14% which is reduced to 2.5% up to the Nova Scotia business limit of $500,000.
| Lower rate | Higher rate | Business limit | |
| Provincial | 2.50% | 14% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 11.50% | 42.00% |
New Brunswick
New Brunswick’s corporate income tax rate is 14% which is reduced to 2.5% up to the New Brunswick business limit of $500,000.
| Lower rate | Higher rate | Business limit | |
| Provincial | 2.50% | 14% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 11.50% | 42.00% |
Prince Edward Island
Prince Edward Island’s (PEI) corporate income tax rate is 16% which is reduced to 1% on the first $500,000 for small businesses that qualify for the federal government’s small business deduction.
| Lower rate | Higher rate | Business limit | |
| Provincial | 1% | 16% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 10.00% | 44.00% |
Ontario
Ontario’s corporate income tax rate is 11.5% which is reduced to 3.2% on the first $500,000 for small businesses that qualify for the Ontario small business deduction.
| Lower rate | Higher rate | Business limit | |
| Provincial | 3.20% | 11.50% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 12.20% | 39.50% |
Manitoba
Manitoba’s corporate income tax rate is 12% which is reduced to 0% on the first $500,000 for small businesses that qualify for the Manitoba business limit of $500,000.
| Lower rate | Higher rate | Business limit | |
| Provincial | 0% | 12% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 9.00% | 40.00% |
Saskatchewan
Saskatchewan’s corporate income tax rate is 12% and is reduced for eligible small businesses to 0% from October 1, 2020 to June 30, 2022; 1% from July 1, 2022 to June 30, 2023; and, 2% from July 1, 2023 forward on the first $600,000.
| Lower rate | Higher rate | Business limit | |
| Provincial | 0% | 12% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 9.00% | 40.00% |
British Columbia
British Columbia’s (BC) corporate income tax rate is 12% which is reduced to 2% on the first $500,000 for small businesses that qualify for the BC’s business limit of $500,000.
| Lower rate | Higher rate | Business limit | |
| Provincial | 2% | 12% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 11.00% | 40.00% |
Nunavut
Nunavut’s corporate income tax rate is 12% which is reduced to 3% on the first $500,000 for small businesses that qualify for the federal government’s small business deduction.
| Lower rate | Higher rate | Business limit | |
| Provincial | 3% | 12% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 12.00% | 40.00% |
Northwest Territories
Northwest Territories’s corporate income tax rate is 11.5% which is reduced to 4% on the first $500,000 for small businesses that qualify for the federal government’s small business deduction.
| Lower rate | Higher rate | Business limit | |
| Provincial | 4% | 11.5% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 11.00% | 39.50% |
Yukon
Yukon’s corporate income tax rate is 12% which is reduced to 0% on the first $500,000 for small businesses that qualify for the federal government’s small business deduction.
| Lower rate | Higher rate | Business limit | |
| Provincial | 0% | 12% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 9.00% | 40.00% |
Alberta
Alberta’s general corporate income tax rate is 8% which is reduced to 2% on the first $500,000 for small businesses that qualify.
| Lower rate | Higher rate | Business limit | |
| Provincial | 2% | 8% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 11.00% | 36.00% |
Quebec
Quebec’s corporate income tax rate is 11.5% which is reduced to a minimum tax rate of 3.2% on the first $500,000 for small business corporations.
| Lower rate | Higher rate | Business limit | |
| Provincial | 3.2% | 11.5% | $500,000 |
| Federal | 9% | 28% | $500,000 |
| Total | 12.20% | 39.50% |
Filing corporate income tax
Filing a corporation’s income tax return can either be completed by hand and mailed to the Canada Revenue Agency (CRA), or it can be completed online.
Corporations that earn more than $1 million a year in revenue are required to submit their corporate income tax return online. Before a corporation can file their electronic income tax return, business owners will need to register for a CRA’s My Business Account, or a representative of the corporation who will file on their behalf will need to be confirmed before they can use the corporation’s My Business Account.
When to file your corporate income tax return
A corporation must file its corporate income tax return within six months after its fiscal year-end. If the corporation’s year-end is December 31st, it has until June 30th to file its corporate income tax return. If the fiscal year end is May 31st, they have until November 30th to file its corporate income tax return.
Penalties for filing and paying late
The CRA will charge a corporation a penalty if it files its corporate income tax return late. The penalty is 5% of the unpaid tax that is due and they add 1% for each month the return is late up to a maximum of 12 months.
The corporation will face an even larger penalty if it received a demand letter from the CRA. This larger penalty is 10% of the unpaid tax amount plus 2% of the unpaid tax amount for each following month the corporate income tax return is late up to a maximum of 20 months.
The CRA is like any other organization in that they want to receive their money on time. Not only will the CRA penalize a corporation for filing their corporate income tax late, but it will also assess penalties for any corporate income tax payments that are late.
Filing a corporation’s income tax return on time and making sure the proper amount of tax is paid to the CRA is important and complicated. Unless the person who is preparing the corporate income tax return is a Chartered Professional Accountant (CPA) or someone with direct experience, it is highly advised to speak to an accounting firm. Having an accounting firm prepare its corporate income tax return will give the corporation a piece of mind that it is onside with the CRA.
Frequently asked questions about corporate income tax
A corporation must file its corporate income tax return within six months after its fiscal year-end. If the corporation’s year-end is December 31st, it has until June 30th to file its corporate income tax return. If the fiscal year end is May 31st, they have until November 30th to file its corporate income tax return.
Corporations will make monthly corporate income tax installments throughout the taxable year. Corporate income tax outstanding for the taxable year will be paid to the CRA two to three months after the corporation’s year-end.
Newly formed corporations are not required to make corporate income tax installments until their second year of operation. A corporation does not have to make federal, provincial or territorial corporate income tax installment payments if the amount of corporate income tax payable is $3,000 or less.
Filing a corporation’s income tax return can either be completed manually and mailed into the Canada Revenue Agency (CRA), or it can be submitted electronically. Corporations that earn more than $1 million a year in revenue are required to submit their corporate income tax return electronically. Before a corporation can file their electronic income tax return, business owners will need to register for a CRA’s My Business Account, or a representative of the corporation who will file on their behalf will need to be confirmed before using the corporation’s My Business Account.
Corporations are required to pay both a Federal and Provincial or Territorial income tax. The corporate tax rate for each jurisdiction will be different depending on the size of the business, industry and if it qualifies for government deductions.
At the federal level, the baseline corporate tax rate is 38% and this can be reduced to 28% through the federal tax abatement if the corporation’s income was earned in Canada. The federal government further offers Canadian-controlled private corporations (CCPCs) that qualify a small business deduction of 19%, resulting in a total federal income rate of only 9%. However, the small business deduction is only available on the first $500,000 of income. Any corporate income after $500,000 will not be able to use the small business deduction.
The Canada Revenue Agency administers the corporate income tax systems for all provinces and territories, except for Alberta and Quebec which administer their own. This means that corporations that earn income in these provinces have to file a separate provincial income tax return in addition to the federal income tax return.
