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Free Resource · 2026 Tax Year · Canada

2026 Canadian Corporate Tax Guide (Federal & Provincial)

The complete 2026 reference for Canadian corporate tax. Federal rates, every province and territory, the small business deduction, passive income and taxable capital grinds, investment income and RDTOH, dividend integration, T2 filing deadlines and instalments. Written by a licensed CPA.

Current as of June 2026. Corporate rates, business limits and thresholds in this guide reflect figures legislated for the 2026 tax year, including mid-year rate changes noted in the tables. CRA adjusts prescribed interest rates quarterly and provinces revise rates in their budgets. Please verify any figure against the latest CRA or provincial release, or speak with us, before relying on it for a filing.

What This Guide Covers

1. Federal Corporate Tax Rates (2026) 2. Combined Federal + Provincial Rates by Province 3. The Small Business Deduction (SBD) 4. Provincial Business Limits That Differ 5. Passive Income and the SBD Grind 6. Taxable Capital and the SBD Grind 7. Associated Corporation Rules 8. Investment Income & RDTOH 9. Dividend Integration: Corporate + Personal 10. T2 Filing Deadlines & Instalments 11. Common Corporate Deductions 12. Costly Corporate Tax Mistakes 13. Key 2026 Thresholds & Amounts 14. Corporate Tax Filing Checklist 15. Frequently Asked Questions

1. Federal Corporate Tax Rates (2026)

Every Canadian corporation starts from the same federal base rate, which is then reduced by the abatement and either the general rate reduction or the small business deduction.

ComponentRateHow It Works
Basic federal rate38.0%Starting rate on taxable income before any reductions.
Federal abatement(10.0%)Removed because provinces levy their own corporate tax. Brings the rate to 28.0% on income earned in a province.
General rate reduction(13.0%)Applies to active income not eligible for the SBD and not investment income. Reduces the general federal rate to 15.0%.
Small business deduction(19.0%)Reduces the federal rate to 9.0% on the first $500,000 of active business income for a CCPC.
Net federal small business rate9.0%On active business income within the business limit.
Net federal general rate15.0%On active business income above the limit, and for non-CCPCs.

Every corporation files a T2, profit or not. A T2 Corporation Income Tax Return is mandatory each year for every incorporated business in Canada, even one that was inactive or lost money. We handle corporate tax filing for businesses across Ontario and Canada on fixed flat fees.

2. Combined Federal + Provincial Corporate Tax Rates by Province (2026)

The rate your corporation actually pays is the federal rate plus your province's rate. The small business column applies to active income within the business limit; the general column applies above it. Rates below are combined (federal + provincial).

Province / TerritorySmall Business (combined)General (combined)
Ontario12.2%26.5%
British Columbia11.0%27.0%
Alberta11.0%23.0%
Saskatchewan10.0%27.0%
Manitoba9.0%27.0%
Quebec12.2%26.5%
New Brunswick11.5%29.0%
Nova Scotia11.5%29.0%
Prince Edward Island10.0%31.0%
Newfoundland & Labrador11.5%30.0%
Yukon9.0%27.0%
Northwest Territories11.0%26.5%
Nunavut12.0%27.0%

Two mid-year changes to watch for 2026. Ontario's small business rate is scheduled to fall from 3.2% to 2.2% effective July 1, 2026, which lowers the Ontario combined small business rate from 12.2% toward 11.2% for income earned after that date. Quebec has announced a similar move toward a 2.2% small business rate. When a rate changes mid-year, the corporate tax is prorated by the number of days each rate is in effect, which we calculate when we prepare the return.

Know Your Exact Fee →

3. The Small Business Deduction (SBD)

The SBD is the single most valuable provision in the corporate tax system for a Canadian small business. It reduces the federal rate from 28% to 9% on the first $500,000 of active business income.

SBD Requirement2026 Rule
Who qualifiesA Canadian-Controlled Private Corporation (CCPC). Not controlled by public corporations or non-residents. Must carry on an active business in Canada.
Federal business limit$500,000 of active business income per year. Income above this is taxed at the general rate.
Active business incomeIncome from an active business carried on in Canada. Excludes most passive investment income (interest, portfolio dividends, most rental income, taxable capital gains).
Associated corporationsMust share one $500,000 limit, allocated on Schedule 23. Multiple corporations cannot multiply the SBD.
Passive income grindAggregate investment income above $50,000 reduces the business limit by $5 for every $1, eliminating it at $150,000.
Taxable capital grindTaxable capital employed in Canada above $10 million reduces the limit on a straight-line basis, eliminating it at $50 million.

The SBD is worth more than most owners realize. On $500,000 of active income in Ontario, the SBD rate of 12.2% produces $61,000 of corporate tax versus $132,500 at the general rate, a difference of $71,500 in a single year. That gap is why protecting SBD access through careful passive-income and association planning matters so much. Corporate Tax Planning →

4. Provincial Business Limits That Differ from $500,000

Most provinces adopt the federal $500,000 business limit, but a few set their own higher limit. Where the provincial limit is higher, the lower provincial small business rate applies to a larger band of income at the provincial level.

ProvinceProvincial Business LimitNote
Federal and most provinces$500,000The standard business limit.
Nova Scotia$700,000Increased to $700,000 effective April 1, 2025.
Prince Edward Island$600,000Increased to $600,000 effective July 1, 2025.
Saskatchewan$600,000Provincial limit of $600,000.

The federal limit still governs the federal SBD. A higher provincial business limit only affects the provincial portion of the tax. The federal small business rate of 9% still applies only to the first $500,000 federally. Where a corporation earns between $500,000 and the higher provincial limit, the federal general rate and the provincial small business rate apply to that band.

5. Passive Income and the SBD Grind

Since 2019, aggregate investment income (AII) earned by a CCPC or its associated group above $50,000 reduces the $500,000 business limit. This is the most expensive avoidable trap for corporations holding investments.

Aggregate Investment IncomeSBD Business Limit RemainingEffect
$0 to $50,000$500,000No reduction.
$75,000$375,000Limit reduced by $125,000.
$100,000$250,000Limit reduced by $250,000.
$125,000$125,000Limit reduced by $375,000.
$150,000 or more$0 (eliminated)All active income taxed at the general rate.

What counts as aggregate investment income: interest, taxable capital gains, most rental income, and foreign dividends. Eligible dividends received from connected Canadian corporations are excluded from AII, which is one reason holding-company structures and the choice of investments inside a corporation matter for SBD planning. Crossing $50,000 of passive income can quietly cost tens of thousands in lost small business rate.

6. Taxable Capital and the SBD Grind

Taxable Capital Employed in CanadaSBD Business LimitImpact
Up to $10,000,000$500,000 (full)No reduction. Most small businesses are well under this.
$10,000,001 to $50,000,000Reduced straight-lineThe business limit is ground down proportionally across this range.
$50,000,000 or more$0 (eliminated)No SBD. All active income at the general rate.

What is taxable capital? Broadly, retained earnings, share capital, surpluses, and loans to the corporation, calculated on Schedules 33 and 34. The $10 million to $50 million phase-out applies to the associated group as a whole. It mainly affects larger CCPCs with significant retained earnings, real estate or investment holdings.

7. Associated Corporation Rules

Corporations controlled by the same person or related group are associated and must share one business limit. The rules exist to stop multiplying the SBD across several companies.

ScenarioSBD Allocation
One corporation, no associationFull $500,000 limit.
Two associated corporationsOne $500,000 limit shared and allocated on Schedule 23.
Three or more associated corporationsThe single $500,000 limit is divided among all of them.
Opco + HoldcoAssociated through common control. The limit is usually allocated to the opco; the holdco's passive income still counts toward the group's AII grind.

Association can be triggered in ways owners do not expect. Family relationships, cross-ownership, and certain options or rights to acquire shares can all create association. Before incorporating a second company, it is worth confirming whether it will be associated with an existing one, because the answer determines whether you gain a second $500,000 limit or simply split the one you already have.

8. Investment Income & RDTOH

Investment income earned inside a corporation is taxed at a high rate, roughly 50% combined, but a large part of that tax is refundable when the corporation later pays taxable dividends. The mechanism is Refundable Dividend Tax on Hand (RDTOH).

RDTOH ConceptHow It Works
Why investment income is taxed highA high upfront corporate rate (about 50% combined) prevents using a corporation to defer tax on passive investments the way active business income can be deferred.
The refundable portionA portion of the corporate tax on investment income is notionally set aside as RDTOH and refunded when the corporation pays taxable dividends to shareholders.
Refund rate$38.33 is refunded for every $100 of taxable dividends paid, until the RDTOH balance is exhausted.
Eligible vs non-eligible RDTOHTracked in two pools. Eligible RDTOH is recovered when eligible dividends are paid; non-eligible RDTOH when non-eligible dividends are paid.
Capital dividend accountThe non-taxable half of capital gains flows to the CDA and can be paid out to shareholders as a tax-free capital dividend.

The high rate is largely a timing cost, not a permanent one. Because the refundable portion comes back when dividends are paid, the real effect of corporate investment-income tax is integration with your personal tax, plus the loss of use of the refundable money until dividends flow. Tracking both RDTOH pools and the CDA correctly each year is essential, and it is part of every corporate return we prepare.

9. Dividend Integration: Corporate + Personal Tax Together

The Canadian system aims for integration: income earned through a corporation and paid out as dividends should bear roughly the same total tax as income earned directly. The gross-up and dividend tax credit are how that balance is struck.

Dividend TypePaid FromGross-UpPersonal Tax (Ontario top bracket, approx.)
Eligible dividendIncome taxed at the general corporate rate38%About 39.3%
Non-eligible dividendIncome taxed at the small business rate15%About 47.7%

Incorporation is mainly a deferral advantage, not an automatic permanent saving. When small business income is paid straight out as a non-eligible dividend, the combined corporate-plus-personal tax is close to the top personal rate on salary. The real benefit is the deferral: a CCPC pays only about 12% corporate tax now and keeps the rest working inside the company until it is withdrawn. The longer earnings stay invested in the corporation, the larger the advantage.

Salary, dividends, or a mix is a modelling question. The optimal way to pay yourself depends on your income, your need for RRSP room and CPP, and whether the corporation needs to retain earnings. We model the salary-dividend mix for every owner-client each year. Corporate Tax Planning →

10. T2 Filing Deadlines & Instalments

Corporate deadlines work off your fiscal year-end, which you choose at incorporation. The filing deadline and the payment deadline are different dates, and missing either is costly.

ObligationDeadlineNotes
T2 return filing6 months after fiscal year-endThe return itself is due six months after year-end, regardless of whether tax is owing.
Balance of tax (most CCPCs claiming SBD)3 months after year-endMany small CCPCs get a three-month payment window.
Balance of tax (other corporations)2 months after year-endCorporations not meeting the CCPC conditions pay within two months.
InstalmentsMonthly or quarterlyRequired where prior-year tax exceeds the small threshold. Eligible small CCPCs may pay quarterly instead of monthly.
Late-filing penaltyPercentage of unpaid tax + monthly amountA base penalty plus an amount for each complete month the return is late, higher for repeat late filers.
Interest on unpaid taxPrescribed rate, compounded dailyThe prescribed rate changes quarterly and is not deductible.

The payment deadline comes before the filing deadline. This catches many first-time incorporated owners. Tax can be due two or three months after year-end while the return is not due until six months after. Interest runs on any balance from the payment deadline, even if you file on time. We map both dates for every client at the start of each fiscal year.

11. Common Corporate Deductions

A corporation deducts the expenses incurred to earn income. The major categories below reduce taxable income before the rates above are applied.

DeductionTreatment
Salaries, wages and bonusesFully deductible, including the employer share of CPP and EI.
Rent and occupancyCommercial rent fully deductible; home-based businesses deduct the business-use share.
Vehicle and travelBusiness-use share of vehicle costs; travel fully deductible, meals at 50%.
Capital cost allowanceDepreciation on equipment, vehicles and other capital assets, by class.
Professional feesAccounting, bookkeeping and business legal fees.
Interest on business borrowingDeductible where funds were used to earn business income.
InsuranceCommercial and professional liability premiums.
Advertising and marketingOnline and print advertising to promote the business.

Deductions feed straight into the rate tables above. Every legitimate deduction lowers the income exposed to the 12.2% or 26.5% combined rate, so disciplined bookkeeping is the foundation of corporate tax savings. Our bookkeeping clients reach year-end with every deduction already captured and supported.

12. Costly Corporate Tax Mistakes

These are the errors we most often correct for incorporated businesses, each of which can cost far more than the fee to get the return done properly.

MistakeConsequence
Taking money out as an undocumented drawCan be assessed as a shareholder benefit and taxed personally, with no offsetting corporate deduction.
Letting passive income drift over $50,000Grinds the SBD and pushes active income to the general rate, costing thousands.
Incorporating a second company without checking associationNo second $500,000 limit; the existing limit is simply split.
Missing the payment deadlineInterest runs from two or three months after year-end, before the return is even due.
Not tracking RDTOH and the CDAMissed dividend refunds and missed tax-free capital dividends.
Filing a T2 late when no tax is owingPenalties and loss of standing; the return is mandatory even with zero tax.

Most of these are invisible until CRA raises them. Shareholder-benefit assessments, SBD grinds and missed RDTOH refunds rarely show up until a return is reviewed or reassessed, by which point interest has accumulated. Getting the structure and the filing right the first time is far cheaper than fixing it later. We include CRA audit support free for every client.

13. Key 2026 Thresholds & Amounts

Threshold2026 AmountWhat It Governs
Federal small business limit$500,000Active income taxed at the small business rate.
Passive income grind starts$50,000 AIISBD reduced by $5 for every $1 above.
Passive income grind eliminates SBD$150,000 AIIEntire business limit removed.
Taxable capital grind range$10M to $50MBusiness limit ground down across this range.
Net federal small business rate9.0%On active income within the limit.
Net federal general rate15.0%On active income above the limit.
RDTOH refund rate$38.33 per $100Refunded when taxable dividends are paid.
GST/HST registration threshold$30,000Mandatory registration once exceeded.
Class 10.1 vehicle CCA ceiling$39,000Max cost for CCA on a passenger vehicle (acquired on/after Jan 1, 2026).
Class 54 zero-emission vehicle ceiling$61,000Max capital cost for an eligible ZEV.
T2 filing deadline6 months after year-endReturn due regardless of tax owing.
CCPC balance-of-tax window3 months after year-endPayment deadline for many small CCPCs.

14. Corporate Tax Filing Checklist

Have these ready before your T2 is prepared. Complete records mean a faster filing and every deduction captured.

ItemWhy It Matters
Fiscal year-end and prior-year T2Sets deadlines and carries forward balances (losses, UCC, RDTOH, CDA).
Full bookkeeping for the yearIncome and expenses reconciled to the bank; the basis for taxable income.
Bank and credit-card statementsTo verify and reconcile the books.
Capital asset purchases and disposalsDrives CCA and any recapture or terminal loss.
Payroll records and T4/T5 slipsSupports the wage deduction and owner compensation.
Shareholder loan and draw detailsTo classify owner withdrawals correctly and avoid shareholder benefits.
GST/HST filings for the yearTo reconcile sales tax with the income reported.
Investment income and dividend recordsFor AII, RDTOH and the CDA.
Details of any associated corporationsTo allocate the business limit on Schedule 23.
Major contracts, loans and leasesFor interest deductibility and lease treatment.

Download the 2026 Corporate Tax Filing Checklist (PDF)

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Frequently Asked Questions: 2026 Corporate Tax

What is the federal corporate tax rate in Canada for 2026?
The net federal small business rate is 9.0% on the first $500,000 of active business income for a CCPC, and the net federal general rate is 15.0% on income above the limit and for non-CCPCs. Provincial rates are added on top.
What is the combined corporate tax rate in Ontario for 2026?
12.2% combined on the first $500,000 of active business income (9.0% federal + 3.2% Ontario) and 26.5% on income above the limit (15.0% federal + 11.5% Ontario). Ontario's small business rate is scheduled to drop from 3.2% to 2.2% effective July 1, 2026, which lowers the combined small business rate for income earned after that date.
Which province has the lowest corporate tax rate?
For small business income, Manitoba and Yukon are the lowest at 9.0% combined because their provincial small business rate is 0%. For general corporate income, Alberta is the lowest at 23.0% combined. Rates vary, so the best province for tax depends on your income type and where you actually carry on business.
What is the small business deduction?
The SBD reduces the federal corporate rate from 28% to 9% on the first $500,000 of active business income earned by a Canadian-Controlled Private Corporation. It is the most valuable corporate tax provision for small business and is worth up to $71,500 a year in Ontario at the full limit.
Who qualifies for the small business deduction?
A Canadian-Controlled Private Corporation that earns active business income in Canada and is not controlled by public corporations or non-residents. The benefit can be reduced by passive investment income over $50,000 and by taxable capital over $10 million.
How does passive income reduce my small business deduction?
Aggregate investment income above $50,000 reduces the $500,000 business limit by $5 for every $1 of passive income. At $150,000 of passive income the entire SBD is eliminated and all active income is taxed at the general rate. This can cost tens of thousands a year.
Do my corporations have to share the $500,000 limit?
Yes, if they are associated. Corporations controlled by the same person or related group share one $500,000 business limit, allocated on Schedule 23. You cannot multiply the SBD by setting up several companies; check association before incorporating a second one.
When is my T2 corporate tax return due?
The T2 return is due six months after your fiscal year-end. However, tax is usually payable earlier, within three months of year-end for many small CCPCs and two months for other corporations. Interest runs from the payment deadline even if you file the return on time.
Does an inactive corporation still have to file?
Yes. A T2 is mandatory every year for every incorporated business, even one that was inactive or had no income. Filing a nil return on time keeps the corporation in good standing and avoids penalties.
What is the tax rate on investment income inside a corporation?
Investment income is taxed at roughly 50% combined. A large portion is refundable through RDTOH when the corporation pays taxable dividends, at $38.33 per $100 of dividends. The non-taxable half of capital gains flows to the capital dividend account and can be paid out tax-free.
What is RDTOH?
Refundable Dividend Tax on Hand is a notional account that tracks the refundable portion of corporate tax on investment income. When the corporation pays taxable dividends, $38.33 is refunded per $100 of dividends. It is tracked in eligible and non-eligible pools.
What is the difference between eligible and non-eligible dividends?
Eligible dividends are paid from income taxed at the general corporate rate and carry a higher gross-up and credit, so personal tax is lower (about 39.3% at the Ontario top bracket). Non-eligible dividends are paid from small business rate income and carry a lower gross-up, so personal tax is higher (about 47.7%).
Is incorporating worth it for the tax savings?
The main benefit is deferral, not an automatic permanent saving. A CCPC pays only about 12% on small business income now and keeps the rest invested until withdrawal. When all income is paid out immediately as dividends, the combined corporate-plus-personal tax is close to the personal rate on salary. The longer earnings stay in the company, the larger the advantage.
Should I pay myself salary or dividends?
It depends on your numbers. Salary is deductible to the corporation and builds CPP and RRSP room; dividends are simpler and avoid CPP but come from after-tax profits. The optimal mix changes each year, which is why we model it for owner-clients annually.
What happens if I take money out of my corporation as a draw?
An undocumented withdrawal can be assessed as a shareholder benefit and taxed in your hands with no offsetting corporate deduction. Money should come out as salary, dividends or a properly documented shareholder loan. This is one of the most common and costly errors we fix for new incorporated clients.
Do provinces have different business limits?
Most use the federal $500,000 limit, but a few are higher: Nova Scotia at $700,000, and Prince Edward Island and Saskatchewan at $600,000. A higher provincial limit only affects the provincial portion of tax; the federal 9% small business rate still applies only to the first $500,000.
What is the manufacturing and processing rate?
Some provinces, including Ontario, offer a reduced provincial rate on qualifying manufacturing and processing income above the small business limit. The federal M&P rate equals the general rate, so the benefit is provincial. Within the small business limit, the lower SBD rate already applies.
How are corporate instalments calculated?
Instalments are generally required where the prior-year or estimated current-year tax exceeds a small threshold. Eligible small CCPCs may remit quarterly rather than monthly. Instalments are based on the prior year, the year before, or an estimate of the current year, whichever you choose to use.
What is taxable capital and why does it matter?
Taxable capital is broadly retained earnings, share capital, surpluses and loans to the corporation. When it exceeds $10 million for the associated group, the small business limit is ground down, and it is eliminated at $50 million. Most small businesses are well below the threshold.
Are corporate tax instalments and interest deductible?
Corporate income tax itself is not deductible, and neither is interest CRA charges on late or deficient tax. This is one reason staying current on payments matters; the interest is a pure cost that compounds daily at the prescribed rate, which changes quarterly.
Can my corporation carry losses to other years?
Yes. Non-capital losses can generally be carried back up to three years and forward up to twenty, and applied against income in those years. Net capital losses have their own rules. Carrying losses to the most beneficial year is part of how we optimize a corporate return.
Does my corporation need to register for GST/HST?
Registration is mandatory once worldwide taxable revenue exceeds $30,000 over four consecutive calendar quarters or in a single quarter. Many corporations register voluntarily before that to recover input tax credits on startup costs.
What records does CRA expect a corporation to keep?
Complete books, supporting receipts and invoices, bank statements, payroll records, and the support for any deductions and balances carried forward. Records are generally kept for six years from the end of the tax year they relate to.
What is the penalty for filing a T2 late?
A base penalty of a percentage of the unpaid tax plus an amount for each complete month the return is late, with higher penalties for repeat late filers. Interest also runs on any unpaid balance from the payment deadline. Filing on time, even a nil return, avoids the penalty.
Do these rates apply to a non-resident-owned corporation?
A corporation controlled by non-residents is not a CCPC and does not get the small business deduction, so its active income is taxed at the general rate. Non-resident-owned corporations can also face additional rules. We advise on the right structure for non-resident owners.
How is corporate income split between provinces?
If a corporation has a permanent establishment in more than one province, income is allocated using a formula based on gross revenue and salaries and wages in each province. Each province then applies its own rate to its share. We handle multi-province allocation on the return.
What is the capital dividend account?
The CDA is a notional account that tracks the non-taxable half of capital gains and certain other amounts. A corporation can elect to pay this balance out to shareholders as a tax-free capital dividend, which is a valuable planning tool that must be tracked and filed correctly.
Will Ontario's small business rate really drop in 2026?
Ontario's budget reduces the provincial small business rate from 3.2% to 2.2% effective July 1, 2026. For a fiscal year that straddles that date, the corporate tax is prorated between the old and new rates by the number of days each is in effect. We calculate the proration on the return.
Can these 2026 figures change during the year?
Yes. Provinces can adjust rates in their budgets, and CRA's prescribed interest rate changes quarterly. The figures here reflect what is legislated for 2026 as of mid-year. Always confirm a figure against the latest CRA or provincial release before relying on it, or ask us.
How much does corporate tax filing cost with your firm?
We work on fixed flat fees with no hourly billing. A T2 corporate return starts from $400, and CRA audit support is included free for every client. You can get an exact quote in under a minute. Know Your Exact Fee →

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