Dual tax rates – Example 1
Income earned in one province or territory
Example
Corp X earned all of its income in 2022 from its permanent establishment in Newfoundland and Labrador. Corp X claimed the small business deduction when it calculated its federal tax payable. The income from active business carried on in Canada was $78,000.
The Newfoundland and Labrador lower rate of tax is 3%. The higher rate of tax is 15%.
Corp X calculates its Newfoundland and Labrador tax payable as follows:
Taxable income
$90,000
Minus: Amount taxed at lower rate. Least of lines 400, 405, 410, and 428 in the federal small business deduction calculation (from the T2 return)
− 78,000
Amount taxed at higher rate
= $12,000
Calculation of Newfoundland and Labrador tax payable:
Taxes payable at the lower rate: $78,000 × 3%
$2,340
Plus: Taxes payable at the higher rate: $12,000 × 15%
+ 1,800
Newfoundland and Labrador tax payable
= $4,140
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