Canada encourages small businesses and entrepreneurs to open up ventures by offering many advantages. As a result, the small business tax rate has seen a reduction in recent years. That is why there is no better time than now to open up your small business.
However, if you wish to know more about the tax rate and how it is calculated, you have come to the right place. Here is your complete guide.
Tax Rate For Small Businesses In Canada
The small business tax rate has gone down in recent years. For example, the federal government implemented a tax rate of 10.5% in 2012, which was known as the SBD (Small Business Deduction). However, the figure went through a further reduction, and now the tax rate is only 9%.
The reason for lowering this was that many organizations were fighting the government, as they needed the incentive to start a small business. Keep in mind that if you make more than $500,000 of taxable income each year, then you will not be counted as a small business. Instead, you will have to pay the higher federal tax rate of 15%.
Qualifying As A Small Business
There is a certain criterion you need to meet to qualify as a small business in Canada. Once you meet these conditions, only then do you have to pay the small business tax rate. Here are all the guidelines that will qualify you as a small business:
- Taxable capital is less than ten million dollars
- The business earns less than $500,000 of active income annually
- The business is earning less than $50,000 as income from passive investments
If you don’t fall under these categories, and you are earning a higher amount, then you will not be counted as a small business. Instead, you will have to pay tax rates just like any other corporation or business.
Calculating The Small Business Tax Rate
Calculating the small business tax rate is complicated, and it also varies between each province and state. Because of this, we recommend that you hire a professional accountant for this purpose. They have the expertise to calculate an accurate tax rate while ensuring that you are complying with all the necessary requirements.
It will reduce the chances of errors, which means you will save time, money, and effort. Filing and calculating tax returns can be a tedious process, so be sure to have help at your disposal for these tasks.
Final Thoughts
That was your complete guide to understanding how you can calculate the small business tax rate in Canada. As a small business, you can struggle to get things done and stay afloat, which is why we recommend that you hire an accountant. They will take care of these details while you can focus on running your business.
For more information on calculating tax rates, please feel free to get in touch with WTC Chartered Professional Accountant today. Their firm will be more than happy to help you out.
