Corporate Tax Rates in Canada for 2026

In Canada, corporate tax rates are not uniform and do not apply equally to all incorporated businesses. The system combines federal and provincial rules, with different tax rates depending on the company's profile and the type of income earned.

In this guide, our tax professionals provide a clear and up-to-date overview of corporate tax rates in Canada for 2026, with a focus on the federal corporate income tax rate and the key mechanisms that determine how your corporate taxes are calculated.

What should you know about corporate tax rates in Canada?

At the federal level, the Canada's corporation tax system is based on a two-tier system, commonly referred to as the dual corporate tax rate structure. This framework determines the federal corporate income tax rate that applies to a business, depending on its profile, and is designed in part to support small and medium-sized companies.

Canadian-controlled private corporations (CCPCs) that meet the eligibility requirements benefit from a reduced small business tax rate, while other businesses, or income that does not qualify, is taxed at the general corporate income tax rate.

When a business does not qualify for the small business rate, or when its income exceeds the eligible threshold, that portion of income is subject to the general federal tax rate, which is 38% before reductions and is then lowered through federal tax mechanisms to an effective rate of 15% in most cases.

In addition to federal corporate tax, corporations are also subject to provincial or territorial corporate income tax, which varies depending on where the income is earned. Certain types of income, such as investment income and capital gains, are subject to specific tax rules.

Federal corporate tax rates in Canada for 2026

For 2026, the federal corporate income tax base rate is 38%. This rate represents the starting point used to calculate federal tax payable by corporations, but it is not the rate most businesses ultimately pay.

Two key mechanisms reduce this rate for corporations taxed under the general regime:

• the federal tax abatement (10%), which accounts for provincial taxation;
• the general tax reduction (13%), which applies to income taxed at the general corporate rate, including income of corporations that do not qualify for the small business rate and the portion of CCPC income exceeding the annual threshold.

After applying these reductions, the effective federal corporate tax rate is 15%.

Reduced federal tax rate for eligible CCPCs (small businesses)

Eligible CCPCs benefit from a reduced federal corporate tax rate of 9% on the first CAD 500,000 of active business income earned during the year.

This reduced rate is available through the Small Business Deduction (SBD) and applies only to active business income. It does not apply to:

• investment or passive income;
• certain investment corporations;
• income exceeding the annual small business limit.

Any income above the CAD 500,000 threshold is taxed at the general federal corporate tax rate of 15%.

Corporate tax rates on investment income

Investment income earned by a corporation is taxed under a separate regime from active business income. This includes interest, rental income, certain dividends, and other forms of passive income.

At the federal level, investment income is subject to a higher corporate tax rate than active business income. This structure is intended to prevent corporations from being used primarily as investment vehicles benefiting from preferential tax treatment.

A portion of this tax may be refunded when taxable dividends are paid to shareholders, through the Dividend Refund mechanism. This system does not eliminate the tax, but rather defers part of it.

Impact on CCPCs

For CCPCs, investment income has an additional consequence. Exceeding certain thresholds can reduce access to the small business tax rate, by lowering the amount of income eligible for the 9% federal rate.

Corporate tax rates on capital gains

When a corporation realizes a capital gain from the sale of an asset (real estate, shares, equipment, or investments), only a portion of the gain is taxable.

Subject to current tax rules, 50% of a capital gain is included in the corporation's taxable income and taxed at the applicable corporate rate (general or small business, depending on the situation). This is why capital gains are generally taxed more favourably than active business income or investment income.

The remaining 50% is non-taxable and is credited to the Capital Dividend Account (CDA). Under certain conditions, this amount may be distributed to shareholders as tax-free capital dividends.

As a result, the effective tax rate on capital gains is lower than on other types of corporate income.

Business tax rates by province and territory in Canada

To calculate your business taxes, it is important to understand that Canadian corporations are subject not only to federal tax, but also to provincial or territorial income tax, depending on where the income is earned. These rates are added to the federal rate and determine the total corporate tax rate.

Each province and territory applies:

• a general (higher) tax rate, applicable to income not eligible for the small business rate;
• a reduced (lower) tax rate, applicable to income eligible for the small business deduction, up to the applicable business limit.

The business limit may follow the federal threshold or be set independently by the province or territory. Some jurisdictions also apply specific rules depending on the nature of the business.

Quebec and Alberta administer corporate income tax through their own provincial tax authorities, with distinct rules and filing requirements.

• Quebec applies a general business tax rate of 11.5% and a reduced rate that may reach approximately 3.2%, subject to strict eligibility criteria.
• Alberta applies a general corporate tax rate of 8% and a small business rate of 2%, under its small business deduction framework.

⚠️ Please note: this table provides an overview. Eligibility criteria, limits, and sector-specific rules may vary depending on the province and the company's situation.

CCPC tax rate in Quebec

Eligible CCPCs in Quebec may benefit from a reduced provincial tax rate on a portion of active business income through the Quebec Small Business Deduction. Eligibility is subject to specific conditions, and not all CCPCs automatically qualify.

For details, see our Quebec corporate tax rate guide.

CCPC tax rate in Ontario

Ontario offers a reduced provincial tax rate for eligible CCPCs on active business income up to the small business limit. Investment income is excluded.

Learn more in our Ontario small business tax rate guide.

CCPC tax rate in British Columbia

British Columbia also provides a reduced business tax rate for eligible CCPCs on active business income up to the provincial threshold. Income above that amount is taxed at the general rate.

See our British Columbia corporate tax rate guide for details.

Frequently Asked Questions about Business Tax Rates in Canada

Why do corporate tax rates vary by province?

Corporate tax rates vary because taxation powers are shared between the federal and provincial governments. While the federal government applies a uniform federal tax rate, each province sets its own business tax rates.

Which province has the highest corporate tax rate in Canada?

There is no single province where corporations always pay the most tax. The effective corporate tax rate depends on the combined federal and provincial rates, the type of corporation, the nature of the income, and eligibility for reduced rates.

Get expert help with your business taxes

Corporate tax rates in Canada vary depending on federal rules, provincial legislation, and the type of income earned. The rate that actually applies always depends on the corporation's specific situation. Misinterpreting tax rules can lead to overpaying tax or costly adjustments. A structured approach, supported by professional guidance, helps ensure compliance while legitimately optimizing your corporate tax position.

At T2inc.ca, our tax accountant assist incorporated businesses across Canada with their T2 corporate tax returns, including Quebec CO-17 filings, through a clear and reliable process.

This article provides general information only and does not constitute personalized tax advice. Would you like to confirm your business tax rate or file your return? Request a free quote and get expert support.