Question 1

What is the small business tax rate in Canada for 2026?

Accepted Answer

Canadian-Controlled Private Corporations (CCPCs) pay a combined federal-provincial tax rate of approximately 9–12% on the first $500,000 of active business income (the small business deduction limit). The general corporate tax rate for income above this threshold is approximately 26–28%, depending on the province.

Question 2

Should I pay myself salary or dividends from my corporation?

Accepted Answer

The optimal split depends on your personal income, province, and retirement strategy. Salary reduces corporate income and creates RRSP contribution room; dividends are taxed at lower personal rates but don't create RRSP room. Most owner-managers benefit from a blend. The salary-dividend mix should also consider CPP contributions (required on salary, not dividends), your marginal personal tax rate, and corporate retained earnings needs.

Question 3

What is a holding company in Canada?

Accepted Answer

A holding company is a corporation that owns shares in another corporation (your operating company). It is used to: (1) protect business assets from operating risks, (2) income-split with family members, (3) accumulate and invest surplus cash at lower corporate tax rates, and (4) facilitate business succession. Setting up a holding company requires incorporation and proper share structure planning — consult a tax accountant.

Question 4

What are the passive income rules for CCPCs?

Accepted Answer

If your corporation earns more than $50,000 of passive investment income in a year, the small business deduction limit is reduced by $5 for every dollar of passive income above $50,000, and eliminated at $150,000 of passive income. This means high-passive-income CCPCs pay the higher general corporate rate on active income. Careful planning of when to earn and distribute investment income can minimize this impact.

Question 5

What is a professional corporation in Canada?

Accepted Answer

A professional corporation (PC) is a special type of corporation available to regulated professionals (doctors, dentists, lawyers, accountants, engineers, etc.). It allows professionals to defer personal income tax on business income earned inside the corporation. Rules vary by province and regulated profession — not all provinces permit professional corporations for every type of regulated professional.

Type of income	Federal rate	With small business deduction
Active business income (under $500K limit)	15%	9%
Active business income (over $500K limit)	15%	15%
Passive/investment income	38.67%	38.67%
Capital dividends	0%	0%

Canadian Corporate Tax Guide: Incorporation, CCPC & Business Structures 2026

Federal corporate tax rates 2026

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