2023 Corporate Income Tax Rates

Note of changes (2022 and later years):

Federal

• The business limit is phased out for Canadian-controlled private corporations (CCPCs) based on the greater of two components:
  1. For corporations that have taxable capital employed in Canada of more than $10 million, the business limit is reduced on a straight-line basis and is eliminated when taxable capital reaches $50 million for taxation years that begin on or after April 7, 2022. The upper limit was $15 million prior to this change. Except for Ontario and Québec, all provinces and territories automatically follow the federal rules with respect to the interaction of taxable capital and the small business deduction. Ontario has tabled legislation to parallel the federal change with the same effective date. Québec has announced that they will also make legislative changes to follow this federal change.
  2. For corporations that earned more than $50,000 of passive investment income in a year, the business limit is reduced by $5 for every $1 of investment income earned and is eliminated when investment income earned reaches $150,000. Ontario and New Brunswick are not implementing the investment income restriction to the provincial business limit.
• The corporate tax rates are temporarily reduced for qualifying companies involved in zero-emission technology manufacturing or process activities. The tax rates on zero-emission technology manufacturing profits would be 4.5% where that income would otherwise be taxed at the 9% small business tax rate, and 7.5% where that income would otherwise be taxed at the 15% general corporate tax rate. The reduced tax rates apply to taxation years that begin after 2021 and are legislated to be gradually phased out in taxation years that begin in 2029, and to be fully phased out for taxation years that begin after 2031. However, the 2023 federal budget announced an extension of the reduced tax rates by three years with the gradual phase-out starting in taxation years that begin in 2032 (instead of 2029) and fully phased out for taxation years that begin after 2034 (instead of 2031).
• 30.67% of investment income is eligible for a refund at the rate of 38.33% of dividends paid.
• The federal rate on personal services business income is 33.0%.
• An additional tax applies to bank and life insurer groups of 1.5% on taxable income over $100 million for taxation years that end after April 7, 2022, which increases the tax rate from 15% (in the chart above) to 16.5%. The $100 million taxable income exemption must be shared amongst group members. The additional tax is prorated for the taxation year based on the number of days in the taxation year after April 7, 2022.
• The Canada Recovery Dividend (CRD) was a one-time 15% tax on bank and life insurer groups based on the corporation’s 2020 and 2021 average taxable income exceeding $1 billion. The $1 billion taxable income exemption must be shared amongst bank and life insurer group members. The CRD liability would be imposed in the 2022 taxation year and payable over five years in equal instalments.

Saskatchewan

• Rate on ABI up to the business limit temporarily decreased from 2% to 0% effective Oct. 1, 2020. The government announced an extension of the 0% small business rate to June 30, 2023, which will increase to 1% effective July 1, 2023 (instead of July 1, 2022) and to 2% effective July 1, 2024 (instead of July 1, 2023).

Québec

• Corporations must either meet the minimum number of remunerated hours test or operate in the manufacturing or primary (MOP) industries to access the small business deduction (SBD).
• To meet the remunerated hours test, the corporation must have paid its employees for at least 5,500 hours per year in its current or previous taxation year. Where the number of hours worked falls below this threshold, the SBD rate will be reduced linearly when the number of hours paid per year falls between 5,000 and 5,500 hours. Where the hours are less than 5,000, no SBD will be available.
• SMBs in the MOP industries that do not meet the remunerated hours test can benefit from the full SBD rate if 50% or more of their activities are in the MOP sector. Where this proportion is between 25% and 50%, the SBD rate will be reduced.
•  If a corporation in the MOP sector meets both the minimum proportion of activities test (over 25%) and the minimum number of remunerated hours test (over 5,000 hours), the SBD rate is equal to the greater of the rates calculated under the two tests.

Prince Edward Island

• Rate on ABI up to the business limit decreased from 2.0% to 1.0% effective Jan. 1, 2022.

The information in this publication is current as March 28, 2023. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.