Small Business Deduction (SBD): Who Qualifies and What You Get
Learn how Canadian-controlled private corporations can access a lower corporate tax rate on their active business income through this deduction.
The Small Business Deduction (SBD) is a tax incentive designed to help small businesses keep more of their earnings by reducing the amount of tax they owe on their primary income.
Who it's for
This deduction is available to Canadian-controlled private corporations (CCPCs).
What you get
If you qualify, your corporation pays a lower corporate tax rate on the first $500,000 of active business income. This helps reduce the overall tax burden on your company's core earnings.
What it costs you
There is no direct fee to access this benefit, but there are specific requirements regarding how your company earns money. You must be actively engaged in business activities to qualify for the full benefit. It is important to note that having passive income (money earned from investments rather than business operations) can reduce the amount of the deduction you are allowed to claim.
The catch to know
The $500,000 income limit is not necessarily per company if you have multiple businesses. If you have associated corporations, those companies must share the $500,000 limit between them.
How to apply
- Ensure your corporation meets the criteria for a Canadian-controlled private corporation.
- Calculate your active business income and identify any passive income.
- Report your income and claim the deduction when filing your corporate tax returns.
- Visit the official portal for more details: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-tax/small-business-deduction.html