Updated on 11 August 2026

If you manage a corporation, tax time is a distinct headache and hassle. Even for a small corporation with few assets and smaller revenue, the calculation of the corporate tax rate can be complicated. The corporate tax rate varies from province to province, and laws might vary on an annual basis.

In this post, we take a look at the details of the Canadian corporate tax rate and how the different rates affect your business. Get everything you need to know about federal rates, CPCC tax rates, historical rates, and tax rates relating to capital gains and investments.

Please note, you should always consult directly with an experienced tax accountant to calculate your business’ corporate tax rate for filing and planning purposes. Contact the team at Accountor CPA for personalized information about budgeting, tax filing, and tax planning for your corporate taxes each year. All figures are relevant for the 2026 tax year.

What's New for 2026

Several important corporate tax changes have taken effect or were announced for the 2026 tax year:

• Ontario reduced its small business corporate income tax rate from 3.2% to 2.2%, effective July 1, 2026.
• Newfoundland & Labrador reduced its small business corporate income tax rate from 2.5% to 2.0%, effective January 1, 2026, with additional reductions scheduled for future years.
• Nova Scotia continues to offer a $700,000 CAD small-business limit, along with its 1.5% provincial small-business tax rate.
• Prince Edward Island continues to apply a $600,000 CAD small-business limit.
• Federal corporate income tax rates remain unchanged at 9% for qualifying CCPC active business income and 15% for the general corporate tax rate.

What Is Corporate Tax Rate in Canada?

The corporate tax rate depends on factors like a corporation's revenue, location, services, and income sources. While it generally applies to most businesses operating in Canada, some organizations — such as registered charities and tax-exempt Crown corporations — are usually exempt from corporate income tax under certain Canadian tax laws.

There are two levels of federal corporate tax rates in Canada, also known as the dual-rate system.

The federal small business tax rate, also known as the lower tax rate or Canadian-controlled private corporation (CCPC) rate, is 9% on qualifying active business income. Eligible manufacturers of qualifying zero-emission technology may qualify for a preferential 4.5% federal rate, subject to specific legislative requirements.

The General Corporate Federal Tax rate, also known as the higher tax rate, is 38%, with a 10% federal tax abatement (Line 608) and a 13% general tax reduction, resulting in an effective 15% federal corporate income tax rate for most general corporations (7.5% for qualifying zero-emission technology manufacturers).

In addition to the applicable federal corporate tax rate, corporations generally pay provincial or territorial corporate income tax, which varies depending on where the corporation has a permanent establishment. Separate rules also apply to investment income, capital gains, and dividend taxation.

Let's narrow it down and look at these corporate tax rates one by one to give you a better understanding of how they affect your corporation.

Canada Federal Corporate Tax Rate (2026)

The term General Corporation refers to a corporation other than a CCPC. A general corporation typically includes public companies and their subsidiaries that are resident in Canada, and Canadian-resident private companies that are controlled by non-residents. Manufacturing and processing corporations, known as M&P, also use these corporate tax rates.

The federal corporate income tax basic rate is 38%, with a 10% federal tax abatement and a 13% general tax reduction, leaving a 15% effective federal corporate income tax rate for general corporations. Eligible manufacturers of qualifying zero-emission technology may qualify for a reduced effective rate of 7.5%, subject to legislative requirements.

In addition to General Corporations and M&P corporations, CCPC income that exceeds the applicable small business limit is generally taxed at the federal general corporate tax rate.

The general rate reduction of 13% does not apply to the following:

1. The first $500,000 CAD of qualifying active business income earned by eligible CCPCs claiming the Small Business Deduction (SBD).
2. Investment income earned by CCPCs.
3. Income earned by certain specialized corporations, including mutual fund corporations, mortgage investment corporations, and investment corporations.

For the CCPC corporate tax rate, see the Small Business (CCPC) Tax Rate for 2026 table in the next section.

 

General / M&P Tax Rate for 2026

2026 Rate Change Note: Ontario reduced its provincial small business corporate income tax rate from 3.2% to 2.2%, effective July 1, 2026. This change does not affect the Ontario general corporate income tax rate of 11.5% shown above. Corporations with taxation years spanning July 1, 2026, may have a blended provincial small business tax rate for that taxation year.

How Blended Corporate Tax Rates Work

If a federal or provincial corporate tax rate changes during your corporation's taxation year, you may not pay the new rate on all of your taxable income. Instead, the Canada Revenue Agency (CRA) generally requires the applicable tax rate to be prorated based on the number of days before and after the effective date of the rate change.

For example, Ontario reduced its small-business corporate income tax rate from 3.2% to 2.2%, effective July 1, 2026.

If your corporation has a December 31, 2026 year-end, your Ontario small business income will generally be taxed using a blended provincial rate because your taxation year includes:

• 181 days at 3.2% (January 1 – June 30).
• 184 days at 2.2% (July 1 – December 31).

This results in an effective Ontario provincial rate of approximately 2.7% for that taxation year, rather than either 3.2% or 2.2%.

For taxation years beginning on or after July 1, 2026, eligible Ontario CCPCs generally qualify for the full 2.2% Ontario small business rate, resulting in a combined federal and Ontario small business tax rate of 11.2%.

Did You Know?

Published corporate tax rates assume your taxation year falls entirely after the effective date of a rate change. If your fiscal year spans the effective date, your actual corporate tax rate may be a blended rate calculated automatically based on the number of days before and after the change. Tax software and professional accountants generally perform this calculation automatically.

Corporate Tax Rate for Small Business Canada (2026)

Small businesses in Canada can qualify for different corporate tax rates depending on their structure, taxable income, and eligibility for the Small Business Deduction (SBD).

Canadian-controlled private corporations (CCPCs) may reduce the federal corporate tax rate on qualifying active business income by claiming the Small Business Deduction. The federal business limit is $500,000 CAD, although some provinces and territories establish higher provincial business limits. The SBD reduces the amount of Part I federal income tax otherwise payable.

The SBD is generally calculated using the lowest of the following amounts reported on the corporation's T2 return:

1. Income from an active business carried on in Canada.
2. Taxable income (Line 405).
3. The applicable business limit (Line 410).
4. The reduced business limit after applying the taxable capital and passive investment income reduction rules, where applicable.

If the applicable tax rate changes during a corporation's tax year, the corporation must calculate its tax based on the number of days each rate is in effect. This is one reason why some corporations may pay a blended tax rate during transition years.

The Small Business Deduction is intended to help qualifying Canadian small businesses and startups by reducing the tax payable on their first portion of active business income.

 

Below are the federal and provincial small business corporate income tax rates that generally apply to Canadian-Controlled Private Corporations (CCPCs) claiming the Small Business Deduction.

 

*Ontario: The 2.2% provincial rate applies to taxation years beginning on or after July 1, 2026. Corporations with taxation years spanning that date may calculate tax using a blended provincial rate for the transition year.

*Quebec: Quebec administers its own corporate income tax system, and eligibility for the reduced rate depends on provincial rules in addition to the federal Small Business Deduction.

Important Planning Considerations

When determining whether your corporation qualifies for the reduced small business rate, remember that the applicable rate depends on more than simply being a CCPC.

Factors that may affect eligibility include:

• Qualification for the Small Business Deduction;
• The applicable provincial or territorial business limit;
• Taxable capital employed in Canada;
• Passive investment income earned by the corporation;
• Associated corporations sharing the business limit;
• Taxation years that include a change to the provincial rate.

Capital Gains Corporate Tax Rate Canada

A capital gain is the profit made from selling capital assets such as investments, shares, real estate, goodwill, and specific business assets. Corporations are typically required to report these gains for income tax purposes.

For the 2026 tax year, 50% of a corporation's capital gain is included in taxable income. This is known as the capital gains inclusion rate. Although changes to the inclusion rate were proposed in recent years, the currently enacted inclusion rate for corporations remains one-half (50%).

The taxable portion of the capital gain is then subject to the corporation's applicable federal and provincial corporate income tax rates. The effective tax payable therefore depends on the province or territory in which the corporation is taxable and the nature of its income.

Corporations may generally apply allowable capital losses against taxable capital gains, subject to the rules in the Income Tax Act. Because capital transactions can have tax consequences, corporations should seek professional advice before disposing of major business assets or investments.

Corporate Investment Income Tax Rate Canada

Investment income in Canada can take many forms for corporations. Primarily, investment income consists of income from property, including interest, rental income, royalties, portfolio dividends, and taxable capital gains. Unlike active business income, investment income is generally considered passive income and is subject to different corporate tax rules.

For Canadian-controlled private corporations (CCPCs), passive investment income can affect eligibility for the Small Business Deduction (SBD). If a corporation earns more than $50,000 CAD of adjusted aggregate investment income (AAII) in a taxation year, its federal business limit begins to be reduced. The business limit is reduced by $5 for every $1 of AAII above the threshold and is completely eliminated once AAII reaches $150,000 CAD.

The taxation of corporate investment income is more complex than the taxation of active business income. In addition to the applicable federal and provincial corporate income tax rules, corporations may also be subject to refundable tax mechanisms, including the Refundable Dividend Tax on Hand (RDTOH) system. As a result, a corporation's effective tax rate depends on several factors, including the type of investment income earned and whether taxable dividends are later paid to shareholders.

The table below provides a general reference to the federal and provincial tax rates that may apply to corporate investment income. It is intended for informational purposes and should not be interpreted as a corporation's final effective tax rate.

Corporate Investment Income Reference Rates 2026

Note: The rates shown above are provided for general reference only. A corporation's actual tax payable on investment income depends on several factors, including the type of investment income earned, the application of the Refundable Dividend Tax on Hand (RDTOH) rules, and whether taxable dividends are subsequently paid to shareholders. Accordingly, these rates should not be interpreted as a corporation's final effective tax rate, which will vary depending on the corporation's specific circumstances.

 

Corporate Tax Rates by Province (2026)

Generally, provinces and territories apply two corporate income tax rates — a lower rate for income eligible for the federal Small Business Deduction (SBD) and a higher general rate for all other taxable corporate income.

Most provinces use the federal business limit of $500,000 CAD, while Prince Edward Island, Saskatchewan, and Nova Scotia have established higher provincial business limits.

These provincial corporate income tax rates apply in addition to the federal corporate income tax. Alberta and Quebec administer their own corporate income tax systems, while the Canada Revenue Agency (CRA) administers corporate income tax for the remaining provinces and territories.

*Ontario: The 2.2% small business rate applies beginning July 1, 2026. Corporations with taxation years that include this date may calculate tax using a blended provincial rate for the transition year.

 

Corporate Tax Rate in Ontario

The general corporate income tax rate in Ontario is 11.5%. Eligible Canadian-controlled private corporations (CCPCs) may qualify for the Ontario small business corporate income tax rate of 2.2%, effective July 1, 2026.

For taxation years that include July 1, 2026, the applicable Ontario small business tax rate is generally prorated based on the number of days before and after the effective date of the rate reduction. As a result, some corporations will pay a blended provincial tax rate during the transition year.

The Ontario business limit remains $500,000 CAD.

Ontario also phases out the Small Business Deduction for CCPCs with taxable capital employed in Canada exceeding $10 million CAD in the previous tax year. The deduction is fully eliminated once taxable capital reaches $50 million CAD. This taxable capital reduction is separate from the passive investment income reduction rules.

Ontario continues to maintain one of Canada's lowest general provincial corporate income tax rates, making it an attractive jurisdiction for many corporations.

Corporate Tax Rate Calculator Canada

Calculating your corporation's income tax is more complicated than simply applying the published federal and provincial tax rates. Your final tax liability depends on factors such as:

• Corporation type;
• Active versus passive income;
• Eligibility for the Small Business Deduction;
• Taxable capital;
• Passive investment income;
• Provincial allocation of taxable income;
• Refundable tax accounts;
• Available tax credits.

Many online corporate tax calculators provide only rough estimates and may not accurately reflect your corporation's actual tax position.

Working with an experienced CPA (Chartered Professional Accountant) remains the most reliable way to calculate corporate income tax accurately. Professional tax planning can also help corporations identify available deductions, avoid penalties, and optimize future tax liabilities.

Canada Corporate Tax Rate History

Corporate income tax rates in Canada have gradually evolved through federal and provincial legislative changes. While some provincial rates have changed several times over the past decade, the federal general corporate tax rate (15%) and the federal small business rate (9%) have remained unchanged since 2019 and continue to apply for the 2026 tax year.

Although the federal business limit has remained at $500,000 CAD, several provinces have increased their provincial business limits to provide additional tax relief for small businesses. Examples include:

• Prince Edward Island — $600,000 CAD.
• Saskatchewan — $600,000 CAD.
• Nova Scotia — $700,000 CAD.

Recent provincial tax changes have focused primarily on reducing provincial small-business tax rates rather than on changing federal corporate tax policy. For example, Ontario reduced its provincial small business rate beginning July 1, 2026, while Newfoundland & Labrador reduced its small business rate effective January 1, 2026.

Understanding historical tax changes helps corporations improve long-term tax planning and anticipate future legislative developments.

Canada Corporate Tax Rate vs USA

Comparing the corporate tax rates in Canada and the United States is not always straightforward because the two countries use different corporate tax systems.

In Canada, corporations generally pay both federal and provincial (or territorial) corporate income tax. The combined corporate tax rate depends on the province in which taxable income is earned and on whether the corporation qualifies for the Small Business Deduction (SBD). Eligible Canadian-controlled private corporations (CCPCs) may benefit from the 9% federal small business rate on qualifying active business income, while general corporations are generally subject to the 15% federal rate before provincial tax is added.

In the United States, corporations generally pay a 21% federal corporate income tax, with many states imposing additional corporate income taxes that vary by jurisdiction. As a result, the total effective corporate tax burden varies by state.

Although the combined corporate tax burden in Canada and the United States may appear similar in many situations, the underlying rules, deductions, tax credits, and filing requirements differ significantly. Businesses operating in both countries should work with qualified tax professionals to ensure compliance with each country's tax legislation.

Useful info

One of the most significant features of Canada's corporate tax system is the Small Business Deduction (SBD), which allows eligible Canadian-controlled private corporations (CCPCs) to benefit from a reduced federal corporate income tax rate of 9% on the first $500,000 CAD of qualifying active business income.

Many provinces also provide their own reduced corporate income tax rates and, in some cases, increased provincial business limits. These provincial incentives can substantially reduce the overall corporate tax burden for qualifying small businesses.

Corporate tax planning should consider more than just published tax rates. Factors such as passive investment income, associated corporations, taxable capital, available tax credits, and the corporation's year-end can all affect the amount of tax ultimately payable.

Common Questions about Corporate Tax Rates in Canada

What is the corporate tax rate in Canada for 2026?

For most general corporations, the federal corporate income tax rate remains 15% after the federal tax abatement and general rate reduction. Eligible CCPCs continue to qualify for the 9% federal small business rate on qualifying active business income, subject to the Small Business Deduction rules.

Which province has the lowest corporate tax rate?

The answer depends on whether you are comparing general corporate tax rates or small business corporate tax rates.

For eligible CCPCs, Yukon (0%) and Manitoba (0%) currently have the lowest provincial small business tax rates, while Ontario, Nova Scotia, Newfoundland & Labrador, and several other provinces offer reduced rates for qualifying corporations. General corporate tax rates vary by province and typically range from 11.5% to 15%.

What is the federal Small Business Deduction?

The Small Business Deduction (SBD) allows eligible Canadian-controlled private corporations (CCPCs) to pay the reduced 9% federal corporate income tax rate on qualifying active business income up to the applicable business limit. Eligibility may also be affected by taxable capital, passive investment income, and associated corporations.

Do provinces have different small business limits?

Yes. While the federal Small Business Deduction (SBD) business limit is $500,000 CAD, some provinces have established higher provincial business limits. For the 2026 tax year, the business limit is $700,000 CAD in Nova Scotia and $600,000 CAD in both Prince Edward Island and Saskatchewan. Most other provinces and territories continue to use the federal business limit of $500,000 CAD. Because provincial rules may differ, corporations should confirm the applicable business limit in the province where they carry on business before calculating their corporate income tax.

When does the lower corporate tax rate apply?

The lower corporate income tax rate generally applies when a corporation:

• Is a Canadian-controlled private corporation (CCPC);
• Qualifies for the Small Business Deduction;
• Earns qualifying active business income;
• Remains within the applicable business limit after applying the taxable capital and passive investment income reduction rules.

Can I qualify for the 9% federal corporate tax rate?

Possibly. The 9% federal rate is available only to eligible Canadian-controlled private corporations claiming the Small Business Deduction. Qualification depends on several legislative requirements, including the corporation's ownership structure, active business income, taxable capital employed in Canada, passive investment income, and associated corporation rules.

How are capital gains taxed for corporations?

For the 2026 tax year, 50% of a corporation's capital gain is included in taxable income. The taxable portion is then subject to the applicable corporate income tax rules. Allowable capital losses may generally be used against taxable capital gains, subject to the Income Tax Act.

What happens if my corporation earns passive investment income?

If a CCPC earns more than $50,000 CAD of adjusted aggregate investment income (AAII), its Small Business Deduction business limit begins to be reduced. The business limit is fully eliminated once AAII reaches $150,000 CAD.

What corporations need to do today?

• Verify eligibility for the Small Business Deduction.
• Monitor passive investment income annually.
• Review provincial corporate income tax changes.
• Plan major asset sales before recognizing capital gains.
• Consult a qualified corporate tax professional before filing.

Get Help Managing Your Corporate Taxes

Managing your corporate tax rate, filing requirements, tax planning, and compliance can seem overwhelming at times. Remember, a corporation's tax liability is influenced by a variety of factors, such as its revenue, the province where it operates, sources of income, shareholder structure, eligibility for the Small Business Deduction, passive investment income, and the relevant provincial laws. Taking these into account can help you navigate the process more smoothly.

At Accountor CPA, we help corporations across Canada navigate changing tax legislation, reduce compliance risks, and develop effective tax-planning strategies tailored to their businesses.

To get the most out of your corporate income and confidently handle your tax responsibilities, consider partnering with experienced corporate tax professionals who really understand both federal and provincial tax rules. Contact us today for a free consultation.