Canada

Corporate - Taxes on corporate income

Last reviewed - 18 June 2021

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 2021. 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 (%)
Basic rate 38.0
Less: Provincial abatement (1) (10.0)
Federal rate 28.0
Less: General rate reduction or manufacturing and processing deduction (2) (13.0)
Net federal tax rate (3, 4) 15.0

Notes

    1. 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.
    2. The general rate reduction and manufacturing and processing deduction do not apply to the first 500,000 Canadian dollars (CAD) 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.
    3. Provincial or territorial taxes apply in addition to federal taxes. Provincial and territorial tax rates are noted below.
    4. For small CCPCs, the net federal tax rate is levied on active business income above CAD 500,000; a federal rate of 9% 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.

Zero-emission technology manufacturers

The 2021 federal budget proposes to temporarily reduce CIT rates on eligible income from zero-emission technology manufacturing and processing activities by 50% (lowering the general rate to 7.5% and the CCPC rate to 4.5%) for 2022 to 2028, then gradually raise these rates back to status quo by 2032. To qualify for the lower tax rates, at least 10% of the company’s gross revenues from all active businesses carried on in Canada must be derived from eligible zero-emission technology manufacturing and processing activities.

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 2021 and do not take into account provincial tax holidays, which reduce or eliminate tax in limited cases.

Province/territory Income tax rate (%) (1, 2)
Alberta (3) 8.0
British Columbia 12.0
Manitoba 12.0
New Brunswick 14.0
Newfoundland and Labrador 15.0
Northwest Territories 11.5
Nova Scotia (4) 14.0
Nunavut 12.0
Ontario (5) 11.5 or 10.0
Prince Edward Island 16.0
Quebec 11.5
Saskatchewan (6) 12.0 or 10.0
Yukon 12.0 or 2.5

Notes

  1. When two rates are indicated, the lower rate applies to manufacturing and processing income.
  2. In all provinces and territories, the first CAD 500,000 (CAD 600,000 in Saskatchewan) of active business income of a small CCPC is subject to reduced rates that range from 0% to 4% (5% before 1 January 2020), depending on the jurisdiction.
  3. Alberta’s rate decreased from 10% to 8% on 1 July 2020.
  4. Nova Scotia's rate decreased from 16% to 14% on 1 April 2020.
  5. 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.
  6. 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.