Dual tax rates – Example 1

Income earned in one province or territory


Corp X earned all of its income in 2018 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
Minus: Amount taxed at lower rate (least of lines 400, 405, 410, and 427 from the T2 return in the small business deduction calculation)
  − 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%
Plus: Taxes payable at the higher rate: $12,000 × 15%
    + 1,800
Newfoundland and Labrador tax payable
  = $4,140

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