Tax season is often a source of concern for small and medium-sized business owners. The reason is that calculating your tax rate in Quebec is not easy.
The goal of this article is to give you a clear and precise idea of how to proceed with this process.
Quebec tax rate calculation: How does it work?
Companies in Quebec are required to file a corporate income tax return every year. It is necessary to file the T2 tax return for Canada and the CO-17 tax return for Quebec.
T2inc offers a unique online solution to help business owners complete their corporate income tax returns! In just a few clicks, you'll be able to submit your documents and have them checked by a certified professional.
Regarding the tax rate of your SME in Quebec, you should know that the tax on private companies is limited to one or two fixed rates in Canada depending on your province. This rate applies only to the profit of your SME. You must first deduct current expenses related to normal business activities, interest expenses, amortization and depreciation.
The base federal tax rate is 38%. It drops to 28% after the federal tax deduction and to 15% after the general tax reduction in Quebec. Also, thanks to the small business deduction, this rate drops to 9% as of January 1, 2019. Pretty good news, even though the calculation doesn't stop here for everyone.
A variable tax rate according to your corporate field of activity and income
There are still a few steps to take in determining the exact tax rate for your small business. Don't forget that a corporate tax specialist is a great help for filing your Quebec income tax returns without any mistakes.
Determine your tax bracket based on your income
There is a second distinction in the Quebec tax brackets for SMEs for the first $500,000 of "active" annual income. Tax rates for the first $500,000 of income generated by Canadian-controlled private corporations are 9% at the federal level, and 11.5% at the provincial level, for a combined 20.5%.
Minor differences for manufacturing SMEs: Additional reduction
As the backbone of the Quebec economy, the manufacturing sector encompasses companies that derive at least 25% of their activities from manufacturing and processing.
If this applies to you, you should know that your first $500,000 of income is taxed at a rate of 3.38% in Quebec, and 9% at the federal level, for a total of 12.38%. The rate for annual revenues exceeding $500,000 is the same as for all other SMEs, i.e. 26.5%.
Other specifics regarding personal service businesses
A personal services business is a corporation that an individual creates to provide services to someone who would be their employer. This particular type of small business is not subject to federal tax reduction and has a tax rate of 33%.
The tax rate in Quebec remains the same, which is 11.5%.
In total, its corporate tax rate is now 44.5%.
Get professional help from our tax specialists
If you need more information regarding the Quebec tax rate for your SME, do not hesitate to contact one of our specialists. We will be happy to answer all your questions and assist your SME throughout the entire process!
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
