Complete Guide · Corporate Tax · Canada
Corporate Tax in Canada: The Complete Guide
T2 filing, deadlines, deductions, instalments, the Small Business Deduction, CCPC rules, holding company structuring, dividend vs. salary optimization and year-end tax planning. Everything in one guide.
What This Guide Covers
1. 2026 Corporate Tax Rates 2. T2 Corporate Tax Return 3. Filing and Payment Deadlines 4. Corporate Tax Deductions 5. Corporate Tax Instalments 6. Small Business Deduction (SBD) 7. CCPC Rules and Benefits 8. Holding Company Structure 9. Dividend vs. Salary 10. Year-End Tax Planning 11. Frequently Asked Questions1. 2026 Corporate Tax Rates
| Province | Small Business (SBD) | General Rate | Investment Income |
|---|---|---|---|
| Ontario | 12.2% | 26.5% | 50.17% |
| British Columbia | 11.0% | 27.0% | 50.67% |
| Alberta | 11.0% | 23.0% | 46.67% |
| Quebec | 12.2% | 26.5% | 50.17% |
| Manitoba | 9.0% | 27.0% | 50.67% |
| Saskatchewan | 10.0% | 27.0% | 50.67% |
| Nova Scotia | 11.0% | 29.0% | 52.67% |
| New Brunswick | 11.5% | 29.0% | 52.67% |
| Newfoundland | 12.0% | 30.0% | 53.67% |
| PEI | 10.0% | 31.0% | 54.67% |
Federal Rate Components
| Component | Rate | Applies To |
|---|---|---|
| Base rate | 38.0% | All corporate income before deductions. |
| Federal abatement | (10.0%) | Provinces levy their own tax. Net federal: 28.0%. |
| Small Business Deduction | (19.0%) | CCPCs on first $500K active income. Federal drops to 9.0%. |
| General rate reduction | (13.0%) | Income not SBD-eligible and not investment income. Federal: 15.0%. |
| Additional refundable tax | +10.67% | Investment income in CCPCs. Federal becomes 38.67%. Refundable via RDTOH. |
A CCPC earning $500,000 in Ontario pays $61,000 at 12.2% vs. $132,500 at 26.5%. That $71,500 annual difference is why the SBD is the most important benefit in Canadian corporate tax. For detailed rate mechanics, RDTOH and dividend integration, see our Ontario Corporate Tax Rates 2026 guide.
2. T2 Corporate Tax Return
Every corporation must file a T2 within 6 months of its fiscal year-end, even with no income or no tax owing. The T2 is a package of schedules, each reporting a specific aspect of the corporation's tax position.
| Schedule | What It Reports |
|---|---|
| Schedule 1 | Net income reconciliation. Adds back non-deductible expenses (50% meals, penalties). Deducts non-taxable items (capital dividends, inter-company dividends). The most important schedule. |
| Schedule 3 | Dividends received/paid, Part IV tax, RDTOH (Eligible and Non-Eligible balances). |
| Schedule 4 | Loss continuity. Non-capital losses (20-year carryforward). Net capital losses (indefinite). |
| Schedule 8 | CCA on all asset classes. Opening UCC, additions, dispositions, CCA claimed, closing UCC. Immediate Expensing. |
| Schedule 23 | SBD allocation between associated corporations. Required every year for associated groups. |
| Schedule 50 | Shareholder information: name, SIN, share ownership for 10%+ shareholders. |
| Schedule 100/125 | GIFI (General Index of Financial Information). Balance sheet and income statement in CRA format. |
| Schedule 200 | Main return: identification, fiscal period, taxable income, tax calculation, balance owing or refund. |
T2s must be filed electronically for corporations with gross revenue above $1 million. We recommend e-filing for all corporations for faster processing. Corporate Tax Filing →
3. Filing and Payment Deadlines
| Deadline | When | Details |
|---|---|---|
| T2 filing | 6 months after year-end | Dec 31 year-end: file by June 30. Mar 31 year-end: file by Sept 30. |
| Tax payment (standard) | 2 months after year-end | Payment is due BEFORE the filing deadline. Interest from the 2-month mark. |
| Tax payment (eligible CCPC) | 3 months after year-end | CCPCs with prior-year taxable income under $500K, SBD claimed, taxable capital under $10M. |
| T4, T4A slips | Last day of February | 2026 slips due February 28, 2027. |
| T5018 (construction) | 6 months after year-end | Report subcontractor payments of $500+. |
Common Year-End Deadlines
| Year-End | T2 Filing | Payment (2 months) | Payment (3 months CCPC) |
|---|---|---|---|
| December 31, 2026 | June 30, 2027 | February 28, 2027 | March 31, 2027 |
| March 31, 2027 | September 30, 2027 | May 31, 2027 | June 30, 2027 |
| June 30, 2027 | December 31, 2027 | August 31, 2027 | September 30, 2027 |
Payment Is Due Before Filing: A Dec 31 year-end corporation must PAY by February 28 and FILE by June 30. Interest accrues from March 1 on any unpaid balance. We prepare a tax estimate within 30 days of every client's year-end. For every CRA deadline, see our CRA Deadlines 2026-2027 reference.
4. Corporate Tax Deductions
Fully Deductible (100%)
| Deduction | Details |
|---|---|
| Salaries, wages and benefits | All payroll costs including CPP, EI employer portions, vacation pay, group benefits. |
| Rent | Business premises rent fully deductible. |
| Professional fees | Accounting, legal, consulting, tax preparation. |
| Advertising and marketing | Digital ads, print, radio, website, social media. Canadian media: 100%. |
| Insurance | CGL, E&O, D&O, key person life insurance. |
| Interest on business debt | Interest on loans used for business purposes. Principal not deductible. |
Partially Deductible or Limited
| Deduction | Limit |
|---|---|
| Meals and entertainment | 50%. Staff parties (up to 6/year): 100%. Golf: 0%. |
| Vehicle (passenger) | CCA on $37,000 max (Class 10.1). Lease $1,050/month. Interest $350/month. Logbook required. |
| Home office | Proportional to business-use square footage. Must be principal place of business (50%+) or exclusive client use. |
Not Deductible
| Expense | Why |
|---|---|
| Personal expenses | Shareholder benefit (taxable) if paid by the corporation. |
| Income tax | Corporate tax itself is not deductible. |
| Penalties and fines | CRA penalties, traffic tickets, bylaw fines: not deductible. |
| Political contributions | Not deductible for corporations. |
5. Corporate Tax Instalments
Corporations owing more than $3,000 in federal tax must pay instalments throughout the year.
| Method | How It Works | Best For |
|---|---|---|
| Prior-year method | Each instalment = 1/12 or 1/4 of prior year's tax. | Stable income. Simple. No estimation. |
| Current-year method | Each instalment = 1/12 or 1/4 of estimated current year's tax. | Declining income. Reduces instalments. |
| Prior-prior/prior (combined) | First 2 instalments based on second prior year. Remaining based on balance to cover prior year. | Growing income. The "no-penalty" method: CRA cannot charge instalment interest if you follow this exactly. |
Instalment Interest: CRA charges compound daily interest at prescribed rate + 4% on late or insufficient instalments from each instalment due date. An underpayment of $10,000 for 6 months costs $400 to $500 in interest. We calculate the optimal method each quarter.
6. Small Business Deduction (SBD)
The SBD reduces the federal rate from 15% to 9% on the first $500,000 of active business income for CCPCs. In Ontario: 12.2% combined. The annual value at $500,000 income: $71,500.
| Requirement | Details |
|---|---|
| CCPC status | Not controlled by public corporations, non-residents or a combination. |
| Active business income only | Investment income does not qualify. Rental income qualifies only with 6+ full-time employees. |
| $500,000 limit | Shared among associated corporations. File Schedule 23 to allocate. |
| Passive income grind | AII above $50,000 reduces SBD by $5 per $1. At $150,000 AII: SBD eliminated. |
| Taxable capital grind | Taxable capital above $10M reduces SBD. At $15M: eliminated. |
Passive Income SBD Grind
| Passive Income (AII) | SBD Business Limit | Annual Cost (Ontario) |
|---|---|---|
| $50,000 or less | $500,000 | $0 |
| $75,000 | $375,000 | $17,875 |
| $100,000 | $250,000 | $35,750 |
| $150,000+ | $0 | $71,500 |
$150,000 in Passive Income Costs $71,500/Year: AII includes interest, foreign dividends, taxable capital gains and rental income (fewer than 6 employees). Canadian eligible dividends from connected corporations are excluded. Strategies: time capital gains, use Canadian eligible dividend investments, establish a holdco, elect capital dividends from CDA. Corporate Tax Planning →
7. CCPC Rules and Benefits
CCPC status unlocks every major tax benefit. Losing it means losing SBD, enhanced SR&ED, RDTOH, LCGE and Immediate Expensing.
| Benefit | CCPC | Non-CCPC / Public |
|---|---|---|
| Small Business Deduction | 9% federal on first $500K | Not available. 15% on all income. |
| Enhanced SR&ED | 35% refundable on first $300K | 15% non-refundable only. |
| RDTOH | Refundable investment income tax | Not available. |
| LCGE | $1,281,866 per shareholder | Not available. |
| Immediate Expensing | Up to $1.5M in year of purchase | Not available. |
| 3-month payment extension | Available for eligible small CCPCs | 2 months only. |
What Causes Loss of CCPC Status
| Event | Impact |
|---|---|
| Non-resident acquires control | CCPC lost immediately. All benefits lost from date of change. |
| Public corporation acquires control | Common in acquisition scenarios. |
| Shares listed on stock exchange | IPO terminates CCPC status. |
| Joint non-resident/resident control | If combination results in non-resident control: CCPC lost. |
8. Holding Company Structure
| Benefit | How It Works |
|---|---|
| Creditor protection | Retained earnings moved from opco to holdco via tax-free dividends (s.112). If opco is sued, holdco assets are separate. |
| Tax-free inter-company dividends | Dividends from connected Canadian corp to another: deducted under s.112. No tax on transfer. |
| Investment management | Holdco invests independently. Separates investment from operating activity. |
| Estate planning | Estate freeze, family trust distributions, intergenerational transfers, probate minimization. |
| Property separation (propco) | Real estate in propco. Opco pays rent. If opco faces lawsuit, real estate protected. |
When to Set Up
| Trigger | Reasoning |
|---|---|
| Retained earnings exceed $200,000 | Enough accumulated cash to justify setup cost and creditor protection. |
| High-liability industry | Construction, trucking, hospitality, healthcare. Operational risk elevated. |
| Estate planning needed | Freeze value, establish family trust, plan intergenerational transfer. |
| Passive income approaching $50,000 | Holdco provides better investment management and creditor separation. |
9. Dividend vs. Salary
| Factor | Salary | Dividend |
|---|---|---|
| Corporate deduction | Yes. Reduces corporate taxable income. | No. Paid from after-tax income. |
| CPP | Yes (5.95% + 5.95% employer + CPP2). Creates retirement benefit. | No CPP. |
| EI | No (exempt for 40%+ shareholders). | No EI. |
| RRSP room | Yes. 18% of earned income (max $32,490). | No RRSP room. |
| Childcare deduction | Yes (counts as earned income). | No. |
| Personal tax (top bracket, Ontario) | 53.53% | 39.34% (eligible) or 47.74% (non-eligible) |
Optimal Split by Income Level (Ontario)
| Total Extraction | Split | RRSP Room Created | Why |
|---|---|---|---|
| $80,000 | 70% salary / 30% dividend | $10,080 | Maximize RRSP and CPP at lower income. |
| $150,000 | 60% salary / 40% dividend | $16,200 | Balance RRSP room with dividend tax advantage. |
| $200,000 | 55% salary / 45% dividend | $19,800 | Salary covers CPP ceiling. Dividends above. |
| $300,000 | 50% salary / 50% dividend | $27,000 | $150K salary = $27K RRSP room. Remaining as dividends. |
| $500,000 | 36% salary / 64% dividend | $32,490 (max) | Salary set to max RRSP cap. Everything else as dividends. |
10. Year-End Tax Planning
| Action | Deadline | Impact |
|---|---|---|
| Review income vs. SBD threshold | 60 days before year-end | Income approaching $500K: defer revenue if legitimate. Above $500K taxed at 26.5%. |
| Accelerate expense purchases | Before year-end | Equipment and supplies deductible this year. Immediate Expensing up to $1.5M for CCPCs. |
| Review passive income (AII) | 60 days before year-end | AII approaching $50K: defer capital gain realizations. Every $1 above $50K reduces SBD by $5. |
| Optimize salary-dividend split | Before last pay period | Affects RRSP room, CPP and personal tax. Declare dividends before year-end if needed. |
| Claim CCA strategically | T2 preparation | CCA is discretionary. Max in high-income years. Defer in loss years. |
| Review shareholder loan | Before year-end | S.15(2) compliance. Unreported loans: income inclusion. |
| Pay accrued bonuses within 180 days | 180 days after year-end | Deductible in year accrued only if paid within 180 days. Otherwise deduction lost. |
| Capital dividend election | Before or at dividend payment | Tax-free distribution from CDA. Reduces retained investment balances. |
| RRSP contribution | 60 days after calendar year-end | If salary paid, maximize RRSP for personal tax reduction. |
| Schedule 23 SBD allocation | T2 filing | Optimal allocation between associated corporations. |
Year-end planning must happen 60+ days before year-end, not after. Most missed opportunities cannot be recovered. We schedule two tax planning sessions per year for every corporate client. Corporate Tax Planning →
Frequently Asked Questions: Corporate Tax in Canada
What is the corporate tax rate for small businesses in Canada?
Federal SBD rate: 9% on the first $500,000 of active business income for CCPCs. Combined with provincial: Ontario 12.2%, BC 11.0%, Alberta 11.0%, Manitoba 9.0%. Above $500,000: general rate (26.5% Ontario). Ontario Rates 2026 →
When is my T2 due?
6 months after year-end (filing). 2 months (payment). 3 months for eligible CCPCs. December 31 year-end: pay by February 28, file by June 30. Corporate Tax Filing →
Should I pay myself salary or dividends?
A mix. Salary creates RRSP room and CPP. Dividends have lower personal rates. Optimal: 55/45 to 65/35 depending on income, RRSP goals, CPP and personal circumstances. We calculate the exact split each year.
What is a CCPC and why does it matter?
Canadian-Controlled Private Corporation. Unlocks: SBD (12.2% vs. 26.5%), SR&ED (35% refundable), RDTOH, LCGE ($1,281,866 per shareholder), Immediate Expensing ($1.5M). Losing CCPC costs tens of thousands per year.
When should I set up a holding company?
Retained earnings above $200,000. Holdco receives dividends tax-free, provides creditor protection, enables estate planning. High-liability industries should plan earlier. Corporate Tax Planning →
What expenses can my corporation deduct?
Salaries, rent, professional fees, advertising, insurance, interest on business debt, office supplies, software, training. Meals: 50%. Vehicle: business percentage with logbook. Equipment: CCA or Immediate Expensing.
Do I need to pay instalments?
Yes if federal tax exceeds $3,000. Monthly or quarterly. Three calculation methods. CRA charges daily compound interest on insufficiencies. CRA Deadlines →
What is the passive income SBD grind?
AII above $50,000 reduces SBD by $5 per $1. At $150,000: SBD eliminated. Cost: $71,500/year (Ontario). Manage by timing gains, using Canadian eligible dividends, holdco and CDA elections.
When should year-end planning start?
60+ days before fiscal year-end. Review SBD threshold, passive income, salary-dividend split, equipment purchases, shareholder loans, CDA balance. Most opportunities are lost after year-end.
How much does corporate tax filing cost?
T2 from $400. FREE for bookkeeping clients ($100/month). CRA audit support FREE. Fixed flat fees. Know Your Exact Fee →
Need Help with Corporate Tax?
T2 filing, tax planning, salary-dividend optimization, holdco structuring, year-end planning. Fixed flat fees. CRA audit support FREE.
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