Maximizing The Small Business Deduction: Preventing Corporations From Being Associated

The Small Business Deduction. The government giveth a wondrous gift, but if you're not careful, they taketh back.

In Ontario, there are preferential tax rates that apply to a corporation's profits when certain criteria are met. One of the more compelling circumstances that Canadian corporation can maximize their tax credits is through the Small Business Deduction (the "SBD"). While the application of the SBD is governed by section 125(1) of the Income Tax Act, a brief assessment of this deduction is provided below.

What is the Ontario Small-Business Deduction?

The Ontario SBD specifically refers to the reduction of corporate income tax rates on the first $500,000.00 of active business income for Canadian-Controlled Private Corporations ("CCPC"). Additionally, this amount also represents the annual limit of active business profits that can be claimed by a CCPC for the Small Business Deduction or shared between associated CCPC's.