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CANADA
INCORPORATING IN CANADA
CANADA TAXATION
CORPORATION TAX RATES
FEDERAL TAX RATES
The basic rate of Part I tax is 38% of your taxable income, 28% after federal tax abatement.
For Canadian-controlled private corporations claiming the small business deduction the net tax rate is 12%.
For the other corporations, the net tax rate is 21%.
PROVINCIAL OR TERRITORIAL TAX RATES
Generally, provinces and territories have two rates of income tax—a lower rate and a higher rate.
The lower rate applies to either:
- the income eligible for the federal small business deduction; or
- the income based on limits established by the particular province or territory.
The higher rate applies to all other taxable income.
The following table shows the income tax rates for the provinces and territories that have corporation tax collection agreements with the federal government (this does not include Quebec, Ontario and Alberta). These rates are in effect on January 1, 2006, and may change during 2006.
Province or territory |
Tax rate on taxable income eligible for the small business deduction
(lower rate) |
Tax rate on other taxable income
(higher rate) |
Newfoundland and Labrador |
5% |
14% |
Nova Scotia |
5% |
16% |
Prince Edward Island |
6.5%* |
16% |
New Brunswick |
2%** |
13% |
Manitoba |
4.5% |
14.5% |
Saskatchewan |
5% |
17%*** |
British Columbia |
4.5% |
12% |
Yukon |
4% |
15% |
Northwest Territories |
4% |
14%**** |
Nunavut |
4% |
12% |
* 5.4% effective April 1, 2006
** 1.5% effective July 1, 2006
*** 14% effective July 1, 2006
****11.5% effective July 1, 2006
T2 Corporation – Income Tax Guide (T4012)
http://www.cra-arc.gc.ca/E/pub/tg/t4012/README.html
WHAT ARE THE INCOME TAX RATES IN CANADA FOR 2006?
Federal tax rates for 2006
15.25% on the first $36,378 of taxable income;
22% on the next $36,378 of taxable income;
26% on the next $45,529 of taxable income; and
29% of taxable income over $118,285.
Provincial/Territorial tax rates for 2006
Under the current tax on income method, tax for all provinces (except Quebec) and territories is calculated the same way as federal tax.
Form 428 is used to calculate this provincial or territorial tax. Provincial or territorial specific non-refundable tax credits are also calculated on Form 428.
Provincial / Territorial tax rates (combined chart) |
Provinces / Territories |
Rate(s) |
Newfoundland and Labrador |
10.57% on the first $29,590 of taxable income, +
16.16% on the next $29,590, +
18.02% on the amount over $59,180 |
Prince Edward Island |
9.8% on the first $30,754 of taxable income, +
13.8% on the next $30,755, +
16.7% on the amount over $61,509 |
Nova Scotia |
8.79% on the first $29,590 of taxable income, +
14.95% on the next $29,590, +
16.67% on the next $33,820 +
17.5% on the amount over $93,000 |
New Brunswick |
9.68% on the first $33,450 of taxable income, +
14.82% on the next $33,452, +
16.52% on the next $41,866, +
17.84% on the amount over $108,768 |
Ontario |
6.05% on the first $34,758 of taxable income, +
9.15% on the next $34,759, +
11.16% on the amount over $69,517 |
Manitoba |
10.9% on the first $30,544 of taxable income, +
13.5% on the next $34,456, +
17.4% on the amount over $65,000 |
Saskatchewan |
11% on the first $37,579 of taxable income, +
13% on the next $69,788, +
15% on the amount over $107,367 |
Alberta |
10% of taxable income |
British Columbia |
6.05% on the first $33,755 of taxable income, +
9.15% on the next $33,756, +
11.7% on the next $10,000, +
13.7% on the next $16,610, +
14.7% on the amount over $94,121 |
Yukon |
7.04% on the first $36,378 of taxable income, +
9.68% on the next $36,378, +
11.44% on the next $45,529, +
12.76% on the amount over $118,285 |
Northwest Territories |
5.9% on the first $34,555 of taxable income, +
8.6% on the next $34,555, +
12.2% on the next $43,248, +
14.05% on the amount over $112,358 |
Nunavut |
4% on the first $36,378 of taxable income, +
7% on the next $36,378, +
9% on the next $45,529, +
11.5% on the amount over $118,285 |
Incentives and Taxes
The World Trade Magazine has ranked Canada in the Top 3 for Investment and Trade Opportunities. Today, Canada can guarantee investors the overall lowest tax rate among developed countries and the most preferable R&D tax credit program among G7 countries. To truly welcome foreign investment, Canada has introduced many incentives to ensure new businesses will be successful.
GST NUMBER REGISTRATION
What is the GST Number?
Most persons and organizations engaged in commercial activities in Canada who have annual worldwide, taxable sales of more than $30 000 must register for and collect the Goods and Services Tax (GST). All tax operators must register for GST/HST, regardless of their revenues.
What is the Federal Business Number (BN)?
The BN is issued by the Canada Revenue Agency (CRA) and is used to unify all accounts a business may have with the federal government. The BN is used to operate corporate income tax, import/export accounts, payroll deductions and GST/HST.
When should I apply for the Federal Business Number (BN)?
Registration should take place after the company has been registered. We can assist you with both, the business registration and the GST registration at the same time.
General Information about GST
Most goods and services sold or provided in Canada are taxable at the rate of 6% (GST). Certain items, such as sales of basic groceries and prescription drugs are taxable at a rate of 0%. These are referred to as zero-rated goods and services. A limited number of goods and services are exempt from the GST.
The GST applies to most transactions from manufacturing to marketing and sales. Businesses and organizations registered for the GST are referred to as registrants.
A Business must register to obtain a Business Number with a GST account. Registrants can claim a credit to recover the GST that is paid or payable on purchases used to provide taxable goods and services. This credit is called an input tax credit and can be claimed for the GST paid or payable for goods or services acquired or imported for use, consumption or supply in their commercial (taxable) activities.
GST registrants who provide taxable goods or services have to charge and collect the GST on their sales. If the GST collected is greater than the GST paid or payable, the difference is sent to the CRA. If the GST collected is less than the GST paid or payable, a refund can be claimed.
Do I need to register for GST (Goods and Services Tax)?
While you are not required to register for GST until your annual gross revenues exceed a minimum threshold (currently $30,000) we generally recommend that any business register as soon as possible.
Three reasons to register:
1. Unless you are a GST registrant you cannot claim GST input tax credits (GST paid on business expenditures). If you are a GST registrant and your input tax credits exceed GST collected on sales, you may claim a refund of the excess from Canada Revenue Agency. If you're not a registrant the GST paid on expenses is included as part of the expense when computing net income.
2. Not being registered for GST tells everyone that you are running a truly small business. (Your sales are below $30,000 per year) If your customers are other businesses, they expect to pay GST.
3. Companies that are required to register for GST must remit the GST tax to Canada Revenue Agency - even if it has not been collected from the customer. By registering for GST upon starting your business you will eliminate the possibility of inadvertently surpassing the $30,000 threshold and being exposed to penalties and interest charges for non-compliance
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