Small business deduction
Corporations that were Canadian-controlled private corporations (CCPCs) throughout the tax year may be able to claim the small business deduction (SBD). The SBD reduces Part I tax that the corporation would otherwise have to pay.
The SBD is equal to a certain percentage (the SBD rate) of whichever of the following amounts is less:
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the income from active business carried on in Canada (line 400)
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the taxable income (line 405)
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the business limit (line 410)
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either one of the following:
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for tax years starting before 2019, the amount on line 427, which is the reduced business limit on line 425 less the amount of the business limit you assigned under subsection 125(3.2)
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for tax years starting after 2018, the amount on line 428, which is the reduced business limit on line 426 less the amount of the business limit you assigned under subsection 125(3.2)
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The SBD rates are:
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19% effective January 1, 2019
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18% effective January 1, 2018
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17.5% before 2018
The basic rate of Part I tax being 38% of your taxable income, 28% after the federal tax abatement, these SBD rates result in the following tax rates:
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9% effective January 1, 2019
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10% effective January 1, 2018
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10.5% before 2018
If the rate changes during the tax year, you have to base your calculation on the number of days in the year that each rate is in effect.
Once you have calculated the SBD, enter it on line 430.
The following sections explain each of the above amounts.
Avoidance of the business limit and taxable capital limit
Where two corporations (Corps A and B) are deemed to be associated because they are associated with the same third corporation (Corp C), but because the third corporation, a CCPC, has filed a Schedule 28 election (see page 30), they are deemed not to be associated with each other for determining the SBD, the following applies:
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investment income derived from Corp C that is deemed by subsection 129(6) to be active business income is not eligible for the SBD and is taxed at the general corporation income tax rate
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Corps A and B remain associated with Corp C. They must include the taxable capital limit of Corp C when calculating the SBD.
Preventing multiplication of the small business deduction
To address concerns about partnership structures that multiply access to the SBD, the specified partnership income rules also apply, for example, to partnership structures in which a CCPC provides services or property to a partnership during the tax year of the CCPC, where the CCPC or a shareholder of the CCPC is a member of the partnership. A similar measure also applies for corporate structures that multiply access to the SBD.
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