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 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 a 12-month taxation year ending on 31 December 2019. 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)||(10.0)|
|Less: General rate reduction or manufacturing and processing deduction (2)||(13.0)|
|Net federal tax rate (3, 4)||15.0|
- 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 9% (10% before 1 January 2019) 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%. Access to the reduced federal tax rate on active business income of 9% is restricted for CCPCs that earn passive investment income exceeding CAD 50,000 in the previous taxation year and unavailable at CAD 150,000 of investment income.
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 for a 12-month taxation year ending on 31 December 2019 and do not take into account provincial tax holidays, which reduce or eliminate tax in limited cases.
|Province/territory||Income tax rate (%) (1, 2)|
|Newfoundland and Labrador||15.0|
|Ontario (4)||11.5 or 10.0|
|Prince Edward Island||16.0|
|Saskatchewan (6)||12.0 or 10.0|
|Yukon||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) of active business income of a small CCPC is subject to reduced rates that range from 0% to 6% (8% before 28 March 2018), depending on the jurisdiction.
- Alberta’s rate decreased from 12% to 11% on 1 July 2019, and will decrease to 10% on 1 January 2020, to 9% on 1 January 2021, and to 8% on 1 January 2022.
- 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 11.7% to 11.6% on 1 January 2019, and will decrease to 11.5% on 1 January 2020.
- 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 has repealed the Liquefied Natural Gas Income Tax Act (the LNG Act) effective 11 April 2019. The LNG Act had implemented an income tax on income from liquefaction activities at or in respect of an LNG facility located in British Columbia. The LNG income tax was in addition to federal and provincial income taxes.
The LNG income tax was a two-tier income tax, calculated as follows:
- Tier 1 tax rate of 1.5% applied on the net operating income (NOI), 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 was added to a tax credit pool that could be used to reduce Tier 2 tax), and
- Tier 2 tax rate of 3.5% applied on the net income (NI), the NOI less up to 100% of the capital investment account (CIA) (the Tier 2 tax would not apply until the CIA was fully depleted and was reduced by the tax credit pool balance).
Upon repealing the LNG Act, the province amended the British Columbia Income Tax Act to allow for a 3% tax credit for qualifying LNG investments. For taxation years that begin after 31 December 2019, a non-refundable natural gas tax credit is available to qualifying corporations that develop natural gas, and have an establishment, in British Columbia. The credit can reduce the effective provincial CIT rate to a minimum of 9% (from 12%). Any unused credit can be carried forward indefinitely.