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What Are Provincial and Territorial Corporate Tax Rates?

Your hard work on growing your company is paying off. Your financial statements show you’re making a profit, and it’s time to compute the taxes on it. How much must you pay? The answer depends on your territorial or provincial income tax rate.

What Are Provincial and Territorial Corporate Tax Rates?

Provincial and territorial corporate tax rates are the tax rates that provincial and territorial governments levy on your corporate profits. You pay these taxes in addition to your federal corporate taxes. For example, if the federal government taxes your corporation at 15%, which is its general corporate rate as of 2018, and your province taxes your corporation at 16%, your business income tax rate is 31%. But, the buck doesn’t stop there, because there’s good news.

Provincial and Territorial Corporate Income Tax Rates Vary

Provinces and territories have both lower and higher corporate tax rates. The good news is, you may qualify for small business rates that lower your provincial or territorial corporate income tax liability. Small business rates apply after taking the small business deduction (SBD), which is available to Canadian-controlled private corporations (CCPCs). This lower small business rate applies to active business income up to the business limit amount, which is $500,000 as of 2018.

For example, as of 2018,

  • Nova Scotia’s lower rate is 3% for CCPCs, and its general corporate rate is 16%.
  • The Northwest Territories’ lower rate is 4% for CCPCs, and its general corporate rate is 11.5%.
  • Manitoba’s lower rate is 0% for CCPCs, and its general corporate rate is 12%.
  • Ontario’s lower rate is 3.5% for CCPCs, and its general corporate rate is 11.5%.

If you qualify for the lower rate, your company saves money.

How to Calculate Provincial and Territorial Corporate Taxes

As a simple example, imagine your corporation in Nova Scotia has $100,000 in profits.

  • Your company owes $16,000 in provincial corporate income tax if you’re subject to Nova Scotia’s higher 16% general corporate rate.
  • If Nova Scotia taxes your same profits at its lower rate for CCPCs, your provincial corporate income tax bill drops, and you pay only $3,000.
  • You save $13,000 in Nova Scotia provincial corporate income taxes, if your company qualifies as a CCPC.

Most provinces and territories use the same business limit for CCPCs as the federal government, but some provinces and territories set their own limits.

If your business is a corporation, understanding federal, provincial and territorial corporate tax rules can deliver great benefits at tax time. In addition to corporate income taxes, your province or territory may charge unique sales taxes, and you may need to deduct provincial or territorial income tax from your employees’ wages.

The right accounting software, designed for your small business needs, can help you pull all of your taxation elements together. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.

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