Income Tax Act subsection 125
The small business deduction is available on active business income for a Canadian Controlled Private Corporation. It provides a reduction in the corporate tax rate up to the federal limit of $500,000.
What the above means is if you are earning active business income as a CCPC then your first $500,000 of net income is taxed at a reduced rate. This makes it easier to amass funds in a corporation and is a large reason many Canadians incorporate their businesses.
| Description | Income Tax Act | 2016 | 2017 | 2018 | 2019 |
| Part I Tax |
|
38% | 38% | 38% | 38% |
| Federal Tax Reduction |
|
-10% | -10% | -10% | -10% |
| Small Business Deduction |
|
-17% | -17.5% | -18.5% | -19% |
| Reduced Rate | 10.5% | 10% | 9.5% | 9% |
CRA Resources
IT-73R6 Small Business Deduction
