Does my Ontario corporation qualify for the small business deduction?

The small business deduction is a federal tax credit that reduces the corporate income tax rate on a portion of active business income earned by a Canadian-controlled private corporation, or CCPC. Ontario aligns its own lower small-business rate with the same eligibility rules, so qualifying federally generally means the lower provincial rate applies too.

To qualify as a CCPC your company must be incorporated in Canada, resident in Canada, and not controlled by public corporations or non-residents. The deduction applies to active business income — income from actually running a business, not from investments or personal services income that the rules treat as a separate category.

The deduction has an annual limit. Income above that limit is taxed at the higher general corporate rate. The limit can also be reduced if your corporation or an associated group holds a large amount of passive investment income inside the company in a prior year. Because the rules around association and passive income are complex, confirm eligibility with a tax professional each year.