The Canadian Tax System Explained
Every rate, bracket, deadline and rule in one visual guide. 2026 Tax Year.
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Every rate, bracket, deadline and threshold on a printable 2-page PDF. Enter your email below.
The Big Picture: How Canadian Taxes Work
Canada has a dual tax system. You pay tax to both the federal government and your province.
Federal + Provincial
Income, Sales, Payroll, Capital Gains
Limit (12.2% rate in Ontario)
Corporate Tax Rates (Ontario, 2026)
The combined federal + provincial rate your corporation pays.
Personal Tax Brackets (Ontario, 2026)
Combined federal + Ontario marginal rates. This is what sole proprietors pay.
HST / GST Rates Across Canada
HST combines federal GST + provincial PST into one harmonized rate.
(GST only)
(GST + 7% PST)
(GST + 6% PST)
(GST + 7% RST)
(GST + 9.975% QST)
(HST)
(HST)
(HST)
(HST)
(HST)
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Download Free PDFSole Proprietorship vs. Corporation
The tax structure that saves the most money for business owners earning $80,000+.
Sole Proprietor
- Tax rate: up to 53.53%
- Liability: unlimited personal
- LCGE on sale: not available
- Income splitting: very limited
- RRSP room: earned automatically
- Setup cost: $60
- At $150K: $42,300 tax
Corporation
- Tax rate: 12.2% SBD
- Liability: limited to corp assets
- LCGE: $1,281,866 per shareholder
- Income splitting: salary, dividends, shares
- RRSP room: via salary portion
- Setup cost: from $308
- At $150K: $18,300 tax
CPP & EI Contributions (2026)
Payroll deductions that apply to every employee and self-employed individual.
CPP (Canada Pension Plan)
EI (Employment Insurance)
Key Business Deductions & Credits
The deductions and credits that save Canadian businesses the most money.
Home Office
Deduct business-use % of rent, utilities, internet, insurance, property tax.
Vehicle Expenses
Business-use % of fuel, insurance, maintenance, lease, interest. Logbook required.
Immediate Expensing
100% write-off up to $1,500,000/year on eligible capital purchases. CCPCs only.
SR&ED Credits
35% refundable on first $300K R&D. $105,000 cash back from CRA. Tech companies.
Salary-Dividend Split
60/40 on $200K creates $72K RRSP room while minimizing combined tax.
LCGE
$1,281,866 capital gains exemption per shareholder on sale of qualifying shares.
Meals & Entertainment
50% deductible for business meals. 100% for staff holiday parties and events.
Professional Development
100% deductible: courses, conferences, certifications related to the business.
Insurance Premiums
CGL, E&O, D&O, key person. 100% deductible business expense.
Key CRA Deadlines
Missing these deadlines triggers penalties and interest. No exceptions.
Corporate Tax Payment
2 months after year-end (3 months for eligible CCPCs). Interest at prescribed rate + 4% on late payments.
Corporate Tax Filing
6 months after year-end. Late filing penalty: 5% of unpaid tax + 1% per month (max 12 months). Repeat: 10% + 2%/month.
Personal Tax Payment
April 30. Self-employed filing: June 15 (but payment still due April 30). Interest from May 1 on unpaid balance.
T4 Slips and Summary
Last day of February. Penalty: $25/day per slip (min $100, max $2,500). Electronic filing mandatory for 6+ slips.
HST Return
Monthly: last day of following month. Quarterly: last day of month after quarter. Annual: 3 months after year-end. Late: 1% + 0.25%/month.
SR&ED Claim (T661)
18 months after fiscal year-end. ABSOLUTE. No extensions. Entire claim forfeited if missed.
Top 10 CRA Audit Triggers
These are the items CRA flags most frequently for Canadian businesses.
Worker misclassification (contractor vs. employee)
HST collected vs. T2 revenue mismatch
Cash-intensive business with low margins
Large vehicle expense claims without logbook
Shareholder loans not repaid within s.15(2)
Real estate flipping reported as capital gains
Consistent losses for 3+ consecutive years
Large management fees between related companies
Home office claims disproportionate to income
Missing T5018 slips (construction industry)
Key Numbers Every Business Owner Should Know
The thresholds, limits and exemptions that drive tax planning decisions.
Threshold
Deduction Limit
SBD Erosion Trigger
SBD Fully Eliminated
Annual Limit
Shareholder
Contribution (2026)
Contribution Room