Your Simple Guide to Canada’s Small Business Tax Rate

For those running a small business in Canada, taxes can feel like a maze of rates, deductions, and deadlines. But out of everything to know, knowing the small business tax rate in Canada might just be the most important. Whether you’re a freelancer, a new startup, or a growing incorporated business, keeping up with the corporate tax rate in Canada for small businesses can help you plan ahead, keep more of your profits, and scale sustainably.

This guide breaks down the current small business tax rate, how it varies by province, and what to expect if your company earns passive income. We’ll also share how alternative banking solutions can help make cross-border expenses and payments simpler, cheaper, and more transparent.

What Is the Small Business Tax Rate in Canada?

The small business tax rate in Canada applies to incorporated businesses that qualify for the Small Business Deduction (SBD). This deduction reduces the amount of corporate income tax you owe on the first portion of your business income.

As of 2025, the federal small business tax rate is 9% on the first $500,00 of active business income.¹ This is significantly lower than the general corporate tax rate of 15%, which applies to larger companies and income above that threshold.²

Here’s what that means in simple terms:

• If your incorporated business earns $500,000 or less in active income, you’ll pay 9% federally, plus a provincial or territorial tax rate, which varies depending on where you operate.³
• The combined rate typically falls between 11% and 13% for most provinces.

This reduced rate gives smaller companies a chance to reinvest profits into hiring, equipment, or expansion instead of losing them all to taxes.

Provincial Small Business Tax Rates

Each province and territory adds its own corporate income tax on top of the federal rate. Here’s a quick overview of how the corporate tax rate in Canada for small businesses looks across the country in 2025:²

As you can see, the rates differ slightly, but the goal across Canada is the same: to support small business growth by keeping taxes manageable.

Who Qualifies for the Small Business Tax Rate?

To benefit from the small business tax rate, your business needs to meet these criteria:

• Be a Canadian-controlled private corporation (CCPC).
• Earn less than $10 million in taxable capital employed in Canada (above this, your SBD gradually reduces).
• Have active business income, meaning income from daily operations, not passive investments.⁴

Freelancers who operate as sole proprietors or self-employed individuals don’t qualify for the corporate small business rate, but they can still deduct business expenses and pay personal income tax on net income. If you’re earning enough to justify incorporation, the lower small business tax rate may lead to significant savings.

How Passive Income Affects the Small Business Tax Rate

The small business passive income tax rate Canada comes into play when your business earns money from sources like investments, real estate, or interest instead of active operations.

In 2019, the federal government introduced new rules to discourage corporations from sheltering investment income within small business structures. Here’s how it works:

• If your company earns more than $50,000 in passive investment income in a year, your access to the small business deduction starts to shrink.
• Once your passive income exceeds $150,000, you lose access to the small business rate and are taxed at the higher general corporate rate.⁵

With these standards in place, the lower rate is reserved for companies that actively reinvest in their operations and job creation rather than those holding large investments.

Wise Business Could Help Your Company Save on Global Payments

Small Business Tax Planning Tips

Here are some practical ways small business owners and freelancers can stay ahead:

• Plan for year-end early: Estimate your income and expenses before December 31 to optimize deductions.
• Separate your business and personal finances: Use dedicated business accounts and payment tools like Wise Business to track international expenses.
• Reinvest strategically: Keeping income within your corporation can allow for reinvestment at a lower tax rate.
• Be mindful of passive income: Keep investments modest if you rely on the small business deduction.
• Consult a tax professional: Rules can vary across provinces, especially if your company operates in multiple locations or industries.

With the right planning and clear financial management, you can take advantage of Canada’s small business tax rate and position your company for long-term stability and growth.

Save Time and Money On Overseas Payments With Wise Business

Wise Business can help you save big time on international payments. Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in currencies.

Use Wise Business >>

Some key features of Wise Business include:

• Mid-market rate: Get the mid-market exchange rate with no hidden fees on international transfers
• Global Account: Send money to countries and hold multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local
• Business Debit Card: Invite your employees to order a debit card for free, and pre-set their spending limit. Add them to your Business account with controlled access and track their spending in one place.
• Global Account: Send money to countries and hold multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local
• Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met
• Free invoicing tool: Generate and send professional invoices
• No minimum balance requirements or monthly fees: Canada based businesses can open an account for free. Learn more about fees here

Final Thoughts

Figuring out the small business tax rate in Canada is more than just a compliance step. It’s a key part of running a financial health business. Actively using the Small Business Deduction, staying mindful of passive income limits, and optimizing your structure for growth can help keep more profits working for you.

And when it comes to managing cross-border transactions, Wise Business helps you go further by offering transparent, real-time international payments without the hidden fees. Because at the end of the day, whether it’s your tax bill or your transfer fee, clarity and efficiency matter.

Sources:

1. Taxes on corporate income - Canada | PWC
2. Corporation tax rates | CRA
3. CCPC Tax planning for passive income | CIBC
4. t2 corporation income tax guide | CRA
5. Active vs passive income Canada | CNCPA