General corporate tax rate

How the 15% federal rate is reached

The CRA describes the basic federal rate of Part I tax as 38% of taxable income, which becomes 28% after the federal tax abatement. The general tax reduction then brings the net federal rate to 15%. A lower 7.5% rate exists for manufacturers of qualifying zero-emission technology, and banks and life insurers face an additional tax, but neither is the situation most small corporations are in.

Provinces add their own tax. Most have two rates: a lower rate for income eligible for the federal small business deduction and a higher rate for all other income. Ontario’s higher rate is 11.5%, so the general rate is 15% plus 11.5%, or 26.5%, on the income that pays it.

Which income pays the general rate

A corporation with no small business deduction pays the general rate on all of its taxable income. A Canadian-controlled private corporation that claims the deduction pays the general rate only on the income outside it: active business income above the business limit, which is $500,000 for most Ontario corporations, and income that is not eligible, such as most investment income. The small business deduction entry explains how the limit is shared among associated corporations and reduced by passive income.

The rate you pay is therefore a result of the facts, not a choice. The same company can pay the lower rate on part of its income and the general rate on the rest in a single year.

A simple illustration

Take an Ontario corporation that is not eligible for the small business deduction and has $200,000 of taxable income. At 15% federal plus 11.5% Ontario, the combined rate is 26.5%, so the tax is $53,000. If the same income were fully eligible for the small business rate, the tax would be much lower. These numbers are illustrative only and ignore credits, refundable tax and any rate change during the year.

Common mistakes

Do not assume one rate applies for every year. The CRA says that when a provincial rate changes during a tax year, the calculation is based on the number of days each rate was in effect. Ontario’s lower rate fell from 3.2% to 2.2% on July 1, 2026, so check the rates for each period your tax year covers.

Do not treat the general rate as the whole cost of getting money to the owner. Profit taxed inside the corporation is only the first layer. Paying it out as a dividend adds personal tax, which the eligible dividend entry describes.

What to discuss with your accountant

Ask how much of your taxable income is expected to fall under the business limit, whether any associated corporations share it, and whether investment income inside the company could affect it. Also confirm when the balance of tax is due, using the balance-due day entry, because the general rate can produce a larger payment than owners expect.