Small Business Tax Benefits
Comprehensive guide to Canadian-Controlled Private Corporation (CCPC) tax advantages and planning strategies.
Small Business Deduction (SBD)
Federal small business rate: 9% on first $500,000 of active business income
This represents a 6% reduction from the general corporate rate of 15%, saving up to $30,000 annually.
| Province | Small Business Rate | Combined Federal + Provincial | Income Limit |
|---|---|---|---|
| Ontario | 3.2% | 12.2% | $500,000 |
| British Columbia | 2.0% | 11.0% | $500,000 |
| Alberta | 2.0% | 11.0% | $500,000 |
| Quebec | 3.9% | 12.9% | $500,000 |
Lifetime Capital Gains Exemption (LCGE)
$1,016,836 tax-free capital gains on qualifying small business shares (2024)
This can save over $270,000 in taxes when selling your business.
Qualification Requirements
- • Must be a CCPC at time of sale
- • Shares held for at least 24 months
- • 90% of assets used in active business
- • Cannot be listed on stock exchange
- • Owned by Canadian resident
Planning Strategies
- • Purify corporation before sale
- • Multiply exemption with family trust
- • Crystallize gains periodically
- • Consider estate freeze
- • Plan succession early
SR&ED Tax Credits
Scientific Research and Experimental Development (SR&ED) program offers substantial tax credits for innovation.
CCPC Benefits
35%
Refundable federal credit on first $3 million of qualifying expenditures
- • Plus provincial credits (8-20%)
- • Cash refunds even if no tax owing
- • Combined credits up to 55%
Eligible Activities
- • Software development
- • Product improvement
- • Process optimization
- • Materials research
- • Prototype development
- • Technology advancement
Tax Integration & Income Splitting
Dividend Planning
Strategic dividend payments can achieve significant tax savings through income splitting with family members.
Example: $100,000 Business Income
- • Corporate tax (12.2%): $12,200
- • After-tax retained: $87,800
- • Eligible dividend to shareholder: $87,800
- • Personal tax on dividend: ~$19,500
- • Total tax: ~$31,700 (vs. $37,910 if earned personally)
Family Employment
Paying reasonable salaries to family members working in the business.
- • Deductible to corporation
- • Creates RRSP contribution room
- • Qualifies for CPP benefits
- • Must be reasonable for work performed
Deductible Business Expenses
Operating Expenses
- • Rent and utilities
- • Office supplies
- • Professional fees
- • Insurance
- • Bank charges
Vehicle & Travel
- • Business mileage
- • Parking fees
- • Business travel
- • Meals (50%)
- • Accommodation
Home Office
- • Portion of rent/mortgage
- • Home insurance
- • Utilities
- • Internet/phone
- • Maintenance
Important Considerations
Tax on Split Income (TOSI) Rules
Since 2018, strict rules apply to income splitting with family members. Ensure compliance to avoid penalties.
- • Family members must be actively involved in business
- • Or own at least 10% of votes and value
- • Reasonableness test applies to dividends
- • Penalties can result in top marginal rate taxation
Maximize Your Small Business Tax Savings
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