Ontario small business deduction
A corporation that was a Canadian-controlled private corporation (CCPC) throughout the tax year can reduce its Ontario basic income tax by claiming the Ontario small business deduction.
The deduction is calculated by multiplying the corporation's Ontario small business income for the tax year by the small business deduction rate (8.3%) for the year, resulting in a lower tax rate of 3.2%.
The Ontario small business deduction (SBD) is phased out for CCPCs (including associated corporations) with taxable capital employed in Canada of more than $10 million in the previous tax year. It is completely eliminated when the taxable capital is $15 million or more in the previous tax year. This is referred to as the taxable capital business limit reduction.
Ontario announced in its 2022 Fall Economic Statement that, subject to the approval of the Legislative Assembly of Ontario, it will parallel the federal change in the SBD phase-out, first announced in the 2022 federal budget. The SBD will not be reduced to nil until a CCPC and its associated corporations have a combined taxable capital of $50 million. This change is effective for tax years beginning after April 6, 2022.
The Ontario small business limit is not subject to the federal passive income business limit reduction. (See the details about the reduced business limit.) As such, eligible Ontario small businesses can receive the Ontario small business deduction regardless of the amount of passive income they earned.
Ontario small business income cannot exceed Ontario taxable income.
When calculating the Ontario small business income, the corporation's Ontario domestic factor is the ratio of the corporation's Ontario taxable income to the corporation's taxable income earned in all provinces and territories.
Claiming the deduction
You can use Part 2 of Schedule 500, Ontario Corporation Tax Calculation, to calculate the deduction. Schedule 500 is a worksheet and you do not have to file it with your return.
On line 402 of Schedule 5, Tax Calculation Supplementary – Corporations, enter the Ontario small business deduction amount.
Forms and publications
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