As a general rule, corporations resident in Canada are subject to Canadian corporate income tax (CIT) on worldwide income. Non-resident corporations are subject to CIT on income derived from carrying on a business in Canada and on capital gains arising upon the disposition of taxable Canadian property (see Capital gains in the Income determination section for more information). The purchaser of the taxable Canadian property is generally required to withhold tax from the amount paid unless the non-resident vendor has obtained a clearance certificate.
Canadian CIT and withholding tax (WHT) can be reduced or eliminated if Canada has a treaty with the non-resident's country of residence. A list of treaties that Canada has negotiated is provided in the Withholding taxes section, along with applicable WHT rates.
Federal income tax
The following rates apply for 31 December 2018 year-ends. For non-resident corporations, the rates apply to business income attributable to a permanent establishment (PE) in Canada. Different rates may apply to non-resident corporations in other circumstances. Non-resident corporations may also be subject to branch tax (see the Branch income section).
||Federal rate (%)
|Less: Provincial abatement (1)
|Less: General rate reduction or manufacturing and processing deduction (2)
|Net federal tax rate (3, 4)
- The basic rate of federal tax is reduced by a 10% abatement to give the provinces and territories room to impose CITs. The abatement is available in respect of taxable income allocated to Canadian provinces and territories. Taxable income allocable to a foreign jurisdiction is not eligible for the abatement and normally is not subject to provincial or territorial taxes.
- The general rate reduction and manufacturing and processing deduction do not apply to the first CAD 500,000 of active business income earned in Canada by Canadian-controlled private corporations (CCPCs), investment income of CCPCs, and income from certain other corporations (e.g. mutual fund corporations, mortgage investment corporations, and investment corporations) that may benefit from preferential tax treatment.
- Provincial or territorial taxes apply in addition to federal taxes. Provincial and territorial tax rates are noted below.
- For small CCPCs, the net federal tax rate is levied on active business income above CAD 500,000; a federal rate of 10% (10.5% before 1 January 2018; 9% after 31 December 2018) applies to the first CAD 500,000 of active business income. Investment income (other than most dividends) of CCPCs is subject to the federal rate of 28%, in addition to a refundable federal tax of 10⅔%, for a total federal rate of 38⅔%.
Provincial/territorial income tax
All provinces and territories impose income tax on income allocable to a PE in the province or territory. Generally, income is allocated to a province or territory by using a two-factor formula based on gross revenue and on salaries and wages. Provincial and territorial income taxes are not deductible for federal income tax purposes. The rates given apply to 31 December 2018 year-ends and do not take into account provincial tax holidays, which reduce or eliminate tax in limited cases.
||Income tax rate (%) (1, 2)
|British Columbia (3)
|Newfoundland and Labrador
||11.5 or 10.0
|Prince Edward Island
|Saskatchewan (6, 7)
||12.0 or 10.0
||12.0 or 2.5
- When two rates are indicated, the lower rate applies to manufacturing and processing income.
- In all provinces and territories, the first CAD 500,000 (CAD 450,000 in Manitoba before 2019; CAD 600,000 in Saskatchewan after 2017) of active business income of a small CCPC is subject to reduced rates that range from 0% to 8%, depending on the jurisdiction.
- British Columbia’s general and manufacturing and processing rate increased from 11% to 12% on 1 January 2018.
- The lower Ontario rate applies to profits from manufacturing and processing, and from farming, mining, logging, and fishing operations, carried on in Canada and allocated to Ontario.
Corporations subject to Ontario income tax may also be liable for corporate minimum tax (CMT) based on adjusted book income. The CMT is payable only to the extent that it exceeds the regular Ontario income tax liability. The CMT rate is 2.7% and applies when total assets are at least CAD 50 million and annual gross revenue is at least CAD 100 million on an associated basis.
- Quebec’s rate decreased from 11.8% to 11.7% on 1 January 2018, and will decrease to 11.6% on 1 January 2019, and to 11.5% on 1 January 2020.
- Saskatchewan’s general rate decreased from 12% to 11.5% on 1 July 2017, and was then restored to 12% on 1 January 2018; the decrease to 11% on 1 July 2019 has been cancelled.
- The minimum rate that applies to Saskatchewan’s manufacturing and processing profits decreased from 10% to 9.5% on 1 July 2017, and was then restored to 10% on 1 January 2018; the decrease to 9% on 1 July 2019 has been cancelled. The manufacturing and processing reduction from the general rate is determined by multiplying the maximum rate reduction (2%) by the corporation’s allocation of income to Saskatchewan.
British Columbia Liquefied Natural Gas Income Tax Act
British Columbia’s Liquefied Natural Gas Income Tax Act implements an income tax on income from liquefaction activities at or in respect of a liquefied natural gas (LNG) facility located in the province. This LNG income tax is in addition to federal and provincial income taxes.
The LNG income tax is a two-tier income tax, calculated as follows:
- Tier 1 tax rate of 1.5% applies on the net operating income (NOI), which is the taxpayer’s profit or loss (with specific adjustments) less up to 100% of the net operating loss account, and less an investment allowance (the Tier 1 tax paid is added to a tax credit pool that can be used to reduce Tier 2 tax), and
- Tier 2 tax rate of 3.5% applies on the net income (NI), which is the NOI less up to 100% of the capital investment account (CIA) (the Tier 2 tax will not apply until the CIA is fully depleted and is reduced by the tax credit pool balance).
The Tier 2 tax rate of 3.5% applies for taxation years starting after 31 December 2016, and will increase to 5% for taxation years starting after 31 December 2036.
The provincial government also introduced a non-refundable Natural Gas Tax Credit under the British Columbia Income Tax Act. This credit is available to LNG taxpayers that have an establishment in British Columbia and may potentially reduce the effective provincial CIT rate to a minimum of 8% (from 12% [11% before 1 January 2018]). Any unused credit can be carried forward indefinitely.