What is Canadian Corporation Small Business Income Tax Deduction?

The Small Business Deduction is a reduction in corporate taxes for Canadian Controlled Private Corporations or CCPSs. It is great tax incentive for Canadian corporations to increase investment and employment. The favourable reduced corporate tax rate is available on active business income up to the corporation’s business limit for the year.

Eligibility for the small business deduction also depends on the amount of corporations taxable capital employed in Canada.

For 2010, the first $500,000 of active business income of a CCPC receives this preferential tax incentive on the federal level and in most provinces. Small Business Deduction is phased out when corporate taxable capital in Canada rises between $10 million and $15 million.

The rate of small business deduction was increased from 16% to 17% effective January 1, 2008.

The SBD is calculated by multiplying the Small Business Deduction rate by the least of the following amounts:

*the income from active business carried on in Canada;
*the taxable income;
*the business limit; or
*the reduced business limit.

50% to 60% small business in Canada qualifies for Small Business Deduction. Claiming Small Business Deduction could reduce your corporate income tax by thousands of dollars. You should consult your Tax Advisor, for the most efficient way to claim Small Business Deduction for your corporation.