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".
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.
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%.
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