REF: https://solidtax.ca/wp-content/uploads/2022/09/t4012-21e-Corporation-Tax-Guide.pdf
My small e-commence store corporation operates in Ontario. What is the tax rate for my company?
| Investment Income |
|||
| General | Small Business - CCPC | ||
| Federal | 15% | 9% | 38.70% |
| Ontario | 11.15% | 3.20% | 11.50% |
| Alberta | 8% | 2% | 8% |
| BC | 12% | 2% | 12% |
The e-commence store qualifies as a CCPC (Canadian-controlled private corporation), and the net income is less than the 500k business limits. Therefore, the effective tax rate is 9% + 3.2 % = 12.2%.
After deducting all qualified business expenses, if the net income is $10k, the corporate tax will be $10k x 12.2% = $1,220
I have a holding company that owns several rental properties and receives rental income in Ontario. What is the tax rate for my company?
Rental income belongs to investment income, and the CRA charges higher rates for investment income. Using the tax rates above, the tax rate is 38.7% + 11.5% = 50.2%. For $10k net business income, the tax will be 10k x 50.2% = $5,020.
The CRA charges a much higher tax rate on corporate investment income since the CRA doesn’t like people using corporations for tax deferral purposes. However, to make the taxation fair, the company will get a dividend refund if your company pays taxable dividends to shareholders.
For example, if your company issue $10k dividend to shareholders, your company will get a dividend refund 10k x 38% = $3,800.
Therefore, after the dividend refund, the corporate tax owing is $5,020 – $3,800 = $1,220, which is the same as an active business with the same net income.
I pay myself a dividend from my consulting company. The company must pay tax based on the net profit and I must pay taxes based on the dividend (T5) amount. Do I get double taxed?
You will get dividend tax credits for your dividend income paid from your company. Since your company already pays 12% taxes, your dividend income will be taxed about 12% lower compared to salary income. Therefore, there will be taxes both on your company and yourself, but the total tax rate is about the same compared to paying a salary to yourself.
If I invest money in my company, and I take the money back later, do I need to pay tax on the money I take back?
No, you do NOT need to pay taxes on the money you take back from the company. Treat it like as if you’re getting back the money that you lent to another person. This is not taxable income.
On the other hand, your company can’t claim this money as business expenses. Only interest can be claimed as a business expense, if applicable.
Will I save on taxes if I create a corporation for my rental property?
No, it won’t save you on taxes to own your rental property through your corporation. The CRA charges much higher tax rates (50.2%) for corporate investment income.
