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 In their efforts to continually make business more favourable the Canadian Federal and Ontario Provincial government has implemented policy to reduce the amount of tax charged to corporations operating in Canada. A primary example of this was the reduction in GST from 7% to 6% which became effective on July 1, 2006. The one percent reduction has had a significant impact, as it has reduced the tax on supplies made in or imported into Ontario.
The following tables and information outline the federal and provincial income tax rates for private corporations operating in Canada as of 2006 and the changes that will take place through to 2009:
Federal Tax
2006 Federal Income Tax Rate for Canadian-Controlled Private Corporations
|
|
Small Business Income up to $300,000 |
General Active Business Income (in excess of small business income) |
Investment Income |
|
General Corporate Rate |
38.0 % |
38.0 % |
38.0 % |
|
Federal Abatement |
(10.0) |
(10.0) |
(10.0) |
|
Surtax |
1.1 |
1.1 |
1.1 |
|
Small Business Deduction |
(16.0) |
0.0 |
0.0 |
|
Rate Deduction |
0.0 |
(7.0) |
0.0 |
|
Refundable Tax |
0.0 |
0.0 |
6.7 |
|
Total % |
13.1 |
22.1 |
35.8 |
Source: KPMG
Effective January 1, 2007 the small business income will increase to $400,000. The small business deduction will gradually increase to 17% effective January 1, 2009. The surtax will be eliminated effective January 1, 2008, and the rate reduction for General Active Business Income will gradually increase to 8%, also effective January 1, 2009.
In addition to these changes there are differences in the federal income tax rates for non-Canadian controlled private corporations:
2006 Federal Income Tax Rate for Non-Canadian-Controlled Private Corporations
|
|
Small Business Income up to $300,000 |
General Active Business Income (in excess of small business income) |
Investment Income |
|
General Corporate Rate |
38.0 % |
38.0 % |
38.0 % |
|
Federal Abatement |
(10.0) |
(10.0) |
(10.0) |
|
Surtax |
1.1 |
1.1 |
1.1 |
|
Manufacturing and Processing Deduction |
(7.0) |
0.0 |
0.0 |
|
Rate Deduction |
0.0 |
(7.0) |
(7.0) |
|
Total % |
22.1 |
22.1 |
22.1 |
Source: KPMG
For non-Canadian controlled corporations the surtax will be eliminated effective January 1, 2008. The manufacturing and processing deduction for small business will gradually increase to 8% effective January 1, 2009, and the rate reduction for general active business income and investment income will increase to 8% by this period.
Provincial Tax
Ontario Provincial Income Tax Rates for Canadian-Controlled Private Corporation
|
Year |
Small Business Income Up to $300,000* |
General Active Business Income |
Investment Income |
|
2006-2009 |
5.5% |
14.0 |
14.0 |
* Small business income increases to $400,000 effective January 1, 2007. Source KPMG
Ontario Provincial Income Tax Rates for Non-Canadian-Controlled Private Corporation
|
Year |
General Manufacturing and Processing Income |
General Active Business Income |
Investment Income |
|
2006-2009 |
12.0% |
14.0 |
14.0 |
Source KPMG
More detailed information pertaining to the previous tables and a thorough description of the changes taking place through to 2009 can be located at:
http://www.kpmg.ca/en/services/tax/taxrates.html
Other Resources
For information on GST and other tax related information Revenue-Canada is an excellent resource:
www.cra-arc.gc.ca/tax
For additional tax related information please visit the Canada Ontario Business Service Centre (COBSC). This site contains detailed information and reports providing information on Federal and Provincial taxation programs and regulations concerning business and individuals in Ontario.
www.cbsc.org
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