The Small Business Deduction is a Canadian income tax deduction available to businesses that were Canadian-controlled private corporations (CCPCs) throughout a particular tax year. It reduces the Part I tax that a corporation would have to pay otherwise. (See Types of Corporations in Canada and Corporate Tax for the requirements for qualifying as a CCPC.)
Effective January 1, 2008 the Small Business Deduction rate is 17%. It applies to the first $500,000 of a corporation's income.
When preparing its corporate income tax form, a Canadian-controlled private corporation claiming the Small Business Deduction would calculate its allowable Small Business Deduction by multiplying the Small Business Deduction rate by the least of the following amounts:
- the income from active business carried on in Canada;
- the taxable income;
- the business limit; or
- the reduced business limit (Canada Revenue Agency).
The maximum allowable business limit for a corporation that is not associated with any other corporation is $500,000 for the calendar year 2009 or later ($400,000 if the calendar year is 2007 or 2008).
For more details on how to calculate the Small Business Deduction, see the Canada Revenue Agency's T4012: T2 Corporation - Income Tax Guide 2010.
The Small Business Deduction is only one of the Corporate Tax Advantages of CCPCs.
