Decisions
Corporate Tax Rate in Canada
Canada's corporate tax rate depends on federal and provincial rates, CCPC status, and the small business deduction. Compare structures before you incorporate.
The corporate tax rate in Canada is not one single number. A corporation generally pays federal corporate income tax plus a provincial or territorial rate, and the rate that applies to your business depends on where it operates, how much active business income it earns, and whether it qualifies for the small business deduction. Rates and thresholds change over time, so confirm the current figures with the CRA and your provincial or territorial finance ministry before you plan.
How corporate tax works in Canada
When you incorporate, the business becomes a separate legal entity and a separate taxpayer. It files its own T2 Corporation Income Tax Return and pays tax on its own taxable income, rather than passing income through to the owner's personal return. That structural difference is the starting point for any comparison of sole proprietorship and corporation tax.
Corporate tax in Canada is layered:
- Federal tax, administered by the Canada Revenue Agency (CRA), applies to all corporations.
- Provincial or territorial tax applies based on where the corporation has a permanent establishment, usually allocated by payroll and gross revenue in each jurisdiction.
- Small business tax rate — a lower effective rate on qualifying active business income, delivered through the small business deduction and generally available to Canadian-controlled private corporations (CCPCs).
Some provinces and territories administer their own corporate income tax, while others rely on the CRA to collect on their behalf. If you operate in more than one province, income may need to be allocated between jurisdictions.
Federal corporate tax rates
The federal government applies a general corporate income tax rate to taxable income, with a lower effective federal rate on income eligible for the small business deduction. A federal abatement also reduces the federal rate on income earned in a province, which is one reason you often see combined federal-provincial rates quoted rather than federal rates alone.
The small business rate is not automatic. To claim it, a corporation generally must be a CCPC, must earn active business income in Canada, and must stay within the annual business limit — and that limit can be reduced or eliminated where the corporation or its associated corporations earn passive investment income or share ownership. Confirm the current business limit and passive income rules on the CRA website.
Federal vs provincial corporate tax rates
| Tax layer | Who it applies to | Where to confirm |
|---|---|---|
| Federal general rate | Most taxable corporate income | CRA corporate income tax rates guidance |
| Federal small business rate | CCPCs with qualifying active business income within the annual business limit | CRA |
| Provincial or territorial general and small business rates | Corporations with a permanent establishment in that jurisdiction | Provincial or territorial finance ministry |
| Combined rate | The blended rate used for planning | CRA plus provincial guidance |
Because provincial rates and thresholds differ, two otherwise identical corporations can face different effective rates based only on where they are taxed.
Corporate tax vs sole proprietorship tax
A sole proprietorship does not pay corporate tax at all. The owner reports business income on form T2125 (Statement of Business or Professional Activities) and pays tax at personal marginal rates, plus CPP contributions on net self-employment income. A corporation pays corporate tax on its income first; the owner then pays personal tax on salary or dividends withdrawn from the corporation.
That difference matters most when profits are left inside the business. At lower profit levels, the combined personal and corporate cost can look similar; at higher levels, the gap tends to widen. See sole proprietorship vs corporation for the full structural comparison.
What the rate does not tell you
A lower corporate rate is only one factor. Incorporation usually adds accounting fees, a separate tax return, payroll and EI obligations for owner-managers, and stricter record-keeping. Integration rules attempt to make salary versus dividend outcomes roughly comparable for a CCPC owner, but they do not remove compliance cost. Consider:
- How much profit you will leave in the corporation versus withdraw.
- Whether you need limited liability or outside investors.
- Whether you qualify as a CCPC and stay under the business limit.
- Ongoing accounting, tax filing, and GST/HST obligations.
For a deeper look at whether the trade-off pays off, see is incorporating worth it and should I incorporate my business.
How to confirm your corporate tax rate
- Identify the provinces or territories where you have a permanent establishment.
- Check the CRA's current federal corporate income tax rates and small business deduction rules.
- Check your provincial or territorial rates and small business thresholds.
- Confirm your business limit if you have associated corporations or passive income.
- Model salary versus dividend scenarios with an accountant before deciding.
Business structures can be compared in how to choose a business structure in Canada. This is general information, not legal or tax advice; confirm current rates and thresholds with the CRA, your provincial or territorial finance ministry, or a qualified tax professional.
Frequently asked questions
What is the corporate tax rate in Canada in 2026?
Canada does not have a single corporate tax rate. A corporation typically pays a federal rate plus the rate of each province or territory where it has a permanent establishment, so the combined rate varies by location. A lower small business rate may apply to qualifying active business income of a Canadian-controlled private corporation. Rates and thresholds change, so confirm the current figures on the CRA website.
Is the small business tax rate lower than the general corporate tax rate?
Yes. The small business deduction generally lowers the effective federal rate on qualifying active business income of a Canadian-controlled private corporation, and most provinces and territories offer a comparable small business rate. The benefit is usually limited to income under an annual business limit, which can be reduced by passive income or shared ownership among associated corporations. Confirm the current limit on the CRA website.
Do sole proprietors pay corporate tax in Canada?
No. A sole proprietorship is not a separate taxpayer, so there is no corporate tax return and no corporate rate. You report business income on form T2125 and pay tax at your personal marginal rate, plus CPP contributions on net self-employment income. Corporate tax only applies if you incorporate. See our guide to sole proprietorship vs corporation tax for the comparison.
Do all provinces and territories charge their own corporate tax?
Each province and territory levies corporate income tax, but administration differs. Some administer their own corporate tax, while others have the CRA collect on their behalf. Rate structures and small business thresholds vary. If you have a permanent establishment in more than one jurisdiction, income is typically allocated between them. Confirm your province's or territory's rules with its finance ministry.