Canada Corporation Tax Guide
the corporate income tax in Canada. The federal corporate tax rate is 15% for the general corporations (the "general corporate rate"). The Canadian-controlled private corporation (CCPC) can claim the small business deduction (SBD) of 9% federal on the first $500,000 of the active business income (the "small business limit"). The combined federal+provincial corporate rates range from 11% (small business rate in Alberta, Saskatchewan, Manitoba, BC, Quebec, Nova Scotia, PEI, NL, NB, YT, NT, NU) to 31% (the general corporate rate in some HST provinces). The CCPC is the private corporation that is controlled by the Canadian residents (the "specified shareholders" — the individuals who are the Canadian residents). The active business income (ABI) is the income from the business carried on in Canada (the "active business" — the manufacturing, the services, the retail, the wholesale). The aggregate investment income (AII) — the passive investment income (the interest, the dividends, the rent, the royalties, the capital gains) is taxed at the higher rate (the federal rate of 38.67% before the refund). The refundable dividend tax on hand (RDTOH) allows the refund of the Part I refundable tax when the corporation pays the dividends to the shareholders. The Part IV tax of 33.33% applies to the dividends received by the CCPC (the "dividend received" — the portfolio dividends). The T2 corporate tax return is due within 6 months of the fiscal year-end (the "corporate tax return deadline"). The corporate tax instalments are due monthly (or quarterly) if the tax payable exceeds $3,000.
Corporate Tax Rates (2025)
- Federal general rate: 15% of the taxable income (the "general corporate rate" — the rate after the "abatement" of 10 points). The effective federal rate is 15% (the "basic federal rate" of 38% less the 10% provincial abatement less the 13% general rate reduction).
- Federal SBD rate: 9% on the first $500,000 of the active business income (the "small business deduction" — the SBD reduces the federal rate from 15% to 9% on the qualified income). The SBD is phased out when the CCPC's taxable capital exceeds $10 million (the "capital phase-out" — the SBD is reduced by $1 for every $40 of the taxable capital above $10 million, fully eliminated at $15 million).
- Provincial general rates: The provincial corporate tax rates range from 8% (Alberta, Saskatchewan, Manitoba, BC, Quebec, NS, PEI, NL, NB, YT, NT, NU — the "general corporate rate" for the provinces) to 16% (the HST provinces — the "general rate" of 14% to 16% plus the 4% HST).
- Provincial small business rates: The provinces offer the provincial small business deduction (the "provincial SBD" — the reduced rate on the first $500,000 of the ABI). The combined federal+provincial small business rate is approximately 11% to 13% (depending on the province).
CCPC Rules
- CCPC definition: The private corporation (the corporation that is NOT a public corporation and NOT controlled by the public corporation) that is "controlled" by the Canadian residents (the individuals who are the Canadian residents). The "control" is the "de jure control" (the ownership of the majority of the voting shares).
- Small business limit: $500,000 of the active business income (the ABI). The business limit is shared among the associated CCPCs (the "associated corporations" — the corporations that are controlled by the same person or the group). The associated corporations must share the $500,000 limit.
- Specified corporate income: The income from the "specified corporate activities" (the "specified corporate income" — the income from the partnerships, the joint ventures, the investment income, and the income from the associated corporations) is NOT eligible for the SBD.
- Investment income: The AII (the "aggregate investment income" — the net taxable capital gains, the interest, the rental income (from the non-active real estate), the royalties, and the dividends) is taxed at the higher federal rate of 38.67% (the "refundable portion" — the 30.67% refundable component).
RDTOH & Part IV Tax
- RDTOH: The refundable dividend tax on hand — the CCPC's pool of the refundable tax paid on the investment income. The RDTOH is refunded at the rate of $1 for every $5 of the dividends paid (the "refund rate" — 38.33% of the dividends paid).
- Part IV tax: The 33.33% tax on the dividends received by the CCPC (the "portfolio dividends" — the dividends from the non-connected corporations). The Part IV tax is refunded when the CCPC pays the dividends (the "dividend refund").
- Eligible RDTOH vs Non-eligible RDTOH: The "eligible RDTOH" (the "ERDTOH" — the refundable tax on the dividends received from the connected corporations) and the "non-eligible RDTOH" (the "NERDTOH" — the refundable tax on the investment income and the portfolio dividends).
Corporate Tax Return & Deadlines
- T2 return: The "Corporation Income Tax Return" is due within 6 months of the fiscal year-end. For the December 31 year-end, the T2 is due June 30 of the following year.
- Corporate tax instalments: The corporation must pay the monthly (or the quarterly) instalments if the tax payable in the prior year exceeded $3,000. The instalments are due on the last day of each month (the "monthly instalment" — the 12 equal payments).
- Balance due: The balance of the corporate tax is due 2 months after the fiscal year-end (3 months for the CCPC with the taxable income below $500,000 in the prior year).
- Late filing penalty: 5% of the tax due plus 1% per month (up to 12 months). The minimum penalty for the late T2 filing is $100 per month (the "T2 late filing penalty" — $100 per month for the late return, up to $2,500).
For the CCPC small business deduction and the eligibility rules, see our Small Business Deduction Guide →. For the corporate dividends and the dividend tax credit, see our Dividend Tax Credit Guide →.