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Canada Immigration and Visa Information. Canadian Immigration Services and Free Online Evaluation.

Canada Immigration and Visa Information. Canadian Immigration Services and Free Online Evaluation.

Immigration.ca is a comprehensive portal for Immigration to Canada

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  • PROFILE
    • Immigration Attorney Profile – Colin Singer is an experienced authority on all aspects of Canadian immigration.
    • Authorized by the Government of Canada – Colin Singer has been a licensed immigration lawyer in good standing with a Canadian Law Society for over 25+ years.
    • Our Team – Our team of more than 25 licensed lawyers, immigration consultants and technical staff is ready to provide you with the immigration advice your need.
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              FREEEVALUATION
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              Business Immigrants: How Canada Reduces Tax for Small Businesses

              by Colin R. Singer / Friday, 12 August 2016 / Published in 2016, Canada Immigration News Articles

              Immigrants to Canada have access to one of the world’s most competitive tax regimes for starting a new business. An important advantage enjoyed by business owners is a low tax rate applicable to active business income earned in Canada. This is called the “small business deduction”.

              Business Immigrants: How Canada Reduces Tax for Small Businesses

              Generally, business income earned in Canada is subject to a general federal tax rate of 15%. In addition, all provinces tax business income at rates ranging from 10 to 16%, depending on the province. As a result, the total combined rate may vary from 25 to 31%, depending on the province. The small business deduction reduces the tax rate applicable to the first $500,000 of business income from 15% to 10.5% at the federal level, and significant reductions also apply to rates charged by provinces.

              For example, the combined federal/provincial general tax rate on corporate business income in Ontario is 26.5%, but the combined rate for income qualifying for the small business deduction is reduced to 15%. In Quebec, the rates are reduced from 26.9% to 18.5%. The reduced tax rates for small businesses by province are provided in the table below.

              Combined Federal/Provincial Corporate Income Tax Rates

              General RateSmall Business RateIncome Eligible for the Small Business Rate
              Alberta27%13.5%$500,000
              British Columbia26%13%$500,000
              Manitoba27%10.5%$450,000
              New Brunswick29%14.5%$500,000
              Newfoundland & Labrador30%13.5%$500,000
              Nova Scotia31%13.5%$350,000
              Northwest Territories26.5%14.5%$500,000
              Nunavut27%14.5%$500,000
              Ontario26.5%15%$500,000
              Prince Edward Island31%15%$500,000
              Quebec26.9%18.5%$500,000
              Saskatchewan27%12.5%$500,000
              Yukon30%13.5%$500,000

              Thus, in most cases, the regular rates on the amount of eligible business income are reduced in half for small companies carried on business in Canada. In comparison, in the Unites States a small business will generally pay corporate tax at the rate of approximately 40% and in France at the rate of approximately 35%.

              Canadian ResidentU.S.
              Resident
              French Resident
              Canadian Business
              (Ontario)
              U.S.
              Business
              French
              Business
              Business Income : $500,000
              Tax: $132,500
              Business Income : $500,000
              Tax: $200,000
              Business Income: $500,000
              Tax: $175,000
              After-tax profit: $367,500After-tax profit: $300,000After-tax profit: $325,000

              The low small business tax rate can result in a significant deferral of personal taxes if the money is kept in the business instead of being paid to the owner as a salary, bonus or dividend. The government has provided this incentive to encourage small businesses to reinvest their earnings for business expansion, job creation and investment.

              The small business deduction only applies to “small businesses”. The government has set the level at which a private corporate group is no longer considered “small” by using the concept of “taxable capital”. A corporation’s taxable capital essentially consists of its debt and equity, less deductions for certain investment assets. The small business deduction threshold is reduced on a straight-line basis when an associated corporate group’s taxable capital employed in Canada in the preceding year is between $10 million and $15 million, and is completely eliminated when taxable capital exceeds $15 million. For example, if the associate corporate group’s taxable capital is $12.5 million, the reduced tax rates will only apply to the first $250,000 of business income.

              Corporations that are controlled by non-residents do not qualify for the reduced tax rates, even if they are small. Therefore, if a Canadian business has several owners, – for example, several family members some of whom may not live in Canada, – it is important to ensure that the control of the business is with Canadian residents in order for the small business deduction to be available.

              Investment income earned by a private corporation controlled by Canadian residents does not qualify for the small business deduction and is subject to tax at the rate of 49.67-53.67%, depending on the province.

              The small business deduction is especially important to new immigrants as a leading study gives conclusive evidence that immigrants are far more likely to own businesses than their Canadian counterparts, a key component for economic growth.  Released in March 2016 and entitled Immigration, Business Ownership and Employment in Canada, the study concludes that ‘rates of private business ownership and unincorporated self-employment are higher among immigrants than among the Canadian-born population’. We know this officially for the first time because data based on immigrant business ownership has only recently become available with the introduction of the Canadian Employer-Employee Dynamics Database, which you can access here.

              Intending business immigrants to Canada are advised to review these and other considerations to ensure the best strategic corporate practices.

              This article was prepared with the generous assistance of Cragmore (www.cragmore.com), a Canadian law firm specializing in international tax.

              Interested employers: Kindly contact us here to receive further information.Interested candidates: Find out whether you qualify to Canada by completing our free on-line evaluation. We will provide you with our evaluation within 1-2 business days.Recent News Articles:

              • Canadian tax opportunities for foreign business owners
              • New Program to Attract Newcomers to Canada’s Francophone Communities

              Read more news about Canada Immigration by clicking here.


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              What you can read next

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