Running a business in Canada is exciting, but taxes can feel confusing. You might be asking, What is the business tax? Simply put, it’s a tax on the profit your business makes. This guide will break down everything you need to know in easy-to-understand terms.
Understanding how it works is the first step to managing your money well. It helps you plan and avoid surprises. Let’s dive into the details.
The Core Components of Canadian Business Tax
Think of it as having two main parts that combine to make your total tax bill. Take a look at these core components:
- Federal Tax: This is what you pay to the Government of Canada, managed by the Canada Revenue Agency (CRA).
- General Rate: The standard federal corporate tax rate is 15%.
- Small Business Rate: If your business is eligible, you can pay a much lower rate of just 9%.
- Provincial or Territorial Tax: On top of federal tax, you also pay tax to your province or territory. Each one sets its own rates, so your total tax depends on where you operate.
Common Types of Business Taxes
While income tax is what most people think of first, there are a few different taxes you need to know about. Explore all the types of taxes:
| Tax Type | Applies To | What It Covers | Due Time |
| Corporate Income Tax | Incorporated businesses | Tax on business profits | Annually (based on fiscal year) |
| GST/HST | Businesses making taxable supplies | Tax collected on goods and services | Monthly, quarterly, or annually (depends on revenue) |
| Payroll Deductions | Businesses with employees | CPP, EI, and income tax withheld from pay | On each pay period remittance schedule |
| Provincial Corporate Tax | Incorporated businesses | Additional provincial tax on profits | Annually, with corporate returns |
| Excise Tax & Duties | Businesses producing/importing specific goods | Alcohol, tobacco, fuel, and certain products | Varies by product and activity |
| Property Tax | Businesses that own commercial property | Local tax on assessed property value | Annually (municipal deadlines) |
| Capital Gains Tax | Businesses selling assets | Tax on profit from asset sales | At time of sale (reported annually) |
Are You Eligible for the Small Business Deduction (SBD)?
It’s what allows eligible businesses to pay the lower 9% federal tax rate on their first $500,000 of profit. So, how do you know if you can get this lower rate? Your business needs to qualify as a Canadian-Controlled Private Corporation (CCPC). This means it must meet a few key conditions.
- It must be a private corporation.
- It must be a resident of Canada and not controlled by non-residents.
- The lower rate applies to active business income.
How to File and Pay Your Business Taxes
Now that you know more about business taxes, let’s talk about how to file them. For corporations, this process involves a few key steps.
- File Your Return: The main tax form you’ll use is the T2 corporate income tax return. This is how to file business taxes in Canada, and you need to do it every year.
- Meet the Deadlines: You generally have six months after your business’s fiscal year ends to file your T2 return. It’s important to meet this deadline to avoid any penalties or interest charges.
- Pay Your Taxes: When it comes to paying, you have several options. A popular question is how to pay business taxes online, and the good news is that it’s very easy. You can pay through your bank, on the CRA’s “My Payment” portal, or by mail.
Conclusion
So, what is the business tax? It means knowing about federal and provincial rates, the Small Business Deduction, and other taxes like GST/HST. Keeping on top of your taxes is key to your business’s success. Working with a knowledgeable team like Phoenix Knight can help you create a strategy that fits your specific needs. Good tax and estate planning is one of the smartest things you can do for the long-term health of your business.
