The Small Business Deduction ("SBD") is a mainstay in
the Canadian taxation of small-to-medium sized Canadian-controlled
private corporations' ("CCPC") business profits. The
SBD reduces a CCPC's tax rate on its first $500,000 of business
profits to a rate of between 10.5% to 15% depending on the province
or territory (Quebec being the outlier at 18.5%). This lower tax
rate enables small businesses to reinvest more profits. It also
provides an opportunity to split income with family members by
paying dividends from after-tax profits to individuals that
otherwise have low income, which results in them paying minimal
personal tax.
These benefits make accessing multiple SBDs an attractive
business goal. The Income Tax Act contains rules that prevent SBD
multiplication by restricting each "associated" group of
corporations to one shared $500,000 Small Business Limit
("SBL"). A corporation's association status is
determined by a number of rules that look at family
