| Before 2022 budget change | Anticipated results under new law | Additional tax savings with 2022 budget change | |||
|---|---|---|---|---|---|
| Taxable capital ($) | SBD ($) | Taxes payable ($) | SBD ($) | Taxes payable ($) | |
| 10 million | 500,000 | 45,000 | 500,000 | 45,000 | 0 |
| 11 million | 400,000 | 51,000 | 487,500 | 45,750 | 5,250 |
| 12 million | 300,000 | 57,000 | 475,000 | 46,500 | 10,500 |
| 13 million | 200,000 | 63,000 | 462,500 | 47,250 | 15,750 |
| 14 million | 100,000 | 69,000 | 450,000 | 48,000 | 21,000 |
| 15 million | - | 75,000 | 437,500 | 48,750 | 26,250 |
| 20 million | - | 75,000 | 375,000 | 52,500 | 22,500 |
| 25 million | - | 75,000 | 312,500 | 56,250 | 18,750 |
| 30 million | - | 75,000 | 250,000 | 60,000 | 15,000 |
| 35 million | - | 75,000 | 187,500 | 63,750 | 11,250 |
| 40 million | - | 75,000 | 125,000 | 67,500 | 7,500 |
| 45 million | - | 75,000 | 62,500 | 71,250 | 3,750 |
| 50 million | - | 75,000 | - | 75,000 | 0 |
* Assume $500,000 of taxable income
Taxable capital is defined according to legislation. In general, it is the sum of the carrying values of shareholders' equity, surpluses, debt, and reserves, reduced by investments in shares and debt held in other companies.
Small business deduction in provinces and territories
All provinces and territories have a preferential tax rate on profits that qualify for the federal small business deduction or are similarly determined. 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. Québec and Ontario have announced they will harmonize their rules with this federal change.
Québec imposes additional criteria on the business profits that qualify for the Québec small business deduction.
Other restrictions to claiming the small business deduction
Having taxable capital that exceeds $10 million is not the only restriction to an otherwise eligible corporation claiming the small business deduction.
In 2018, another restriction was added to limit the SBD where certain investment income within an associated group of corporations exceeds $50,000 in the preceding taxation year. Under this provision, the small business deduction is eliminated when investment income exceeds $150,000 in the preceding taxation year.
No changes have been proposed to this investment income reduction of the SBD. As a result, not all taxpayers will be able to take advantage of the increased limit to phase out the small business deduction based on taxable capital.
How BDO can help
Our BDO tax professionals can help you assess how this change will affect your business and whether you are eligible to access these additional savings.
The information in this publication is current as of February 27, 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.