How to Calculate Your Business Tax Rate in Quebec

When it comes to running a business in Quebec, understanding tax rates is crucial. Businesses in Quebec are subject to corporate tax obligations, and knowing what these are and complying with the law is an important part of corporate financial management.

Our business accounting experts take a closer look at the various elements involved in calculating corporate taxes.

Quebec's corporate tax system

Understanding the tax system in the province of Quebec is crucial to effectively managing your business finances. By doing so, you can be confident that you are following the law, minimizing the risk of tax disputes and optimizing your company’s tax benefits.

Overview of Quebec's corporate tax system

In Quebec, the corporate tax system is based on specific laws and regulations. Complying with these tax rules is the only way Quebec companies can operate legally and avoid tax disputes.

The Quebec tax system imposes various categories of business tax and obligatory contributions, including the Corporate Income Tax (CIT) and the Contribution to The Health Services Fund (HSF). Each category has its own rules and tax rates.

The roles of Revenu Québec and the Canada Revenue Agency (CRA)

Revenu Québec is the government agency responsible for administering and collecting taxes in Quebec. Its main role is to enforce provincial tax laws.

The Canada Revenue Agency (CRA) is the federal agency responsible for administering and collecting taxes at the national level. The CRA coordinates and implements federal tax laws, which may also apply to businesses operating in Quebec.

The two organizations work closely together to ensure tax compliance and the exchange of relevant information. They conduct tax audits, process corporate tax returns, issue notices of assessment and provide tax advice.

Please note: the tax system evolves constantly and tax rules may change. To keep up to date on corporate tax requirements in Quebec, please consult the official websites of Revenu Québec and the CRA, and ask business tax professionals for advice.

Calculating corporate tax rates in Quebec

In Quebec, corporations are required to file a corporate income tax return every year. This involves completing a T2 return and a CO-17 return.

T2inc offers a unique online solution to help entrepreneurs complete their corporate income tax returns! In just a few clicks, you can prepare your documents and have them verified by a certified professional.

In the meantime, find out more about the criteria used to calculate corporate tax rates in Quebec.

Taxable corporate income

Corporate income tax is calculated based on taxable income. This usually refers to a company's net profit after deducting operating expenses, depreciation and non-deductible expenses. The definition of taxable income may vary according to a company's legal structure and sector of activity, and applicable tax laws.

In concrete terms, the basic federal tax rate is 38%, falling to 28% after the federal tax abatement and 15% after the general tax reduction in Quebec. Thanks to the small business deduction, this rate dropped to 9% as of January 1, 2019. Pretty good news, even if the math doesn't stop there for everyone.

Tax rates

Quebec uses a progressive tax rate system, which means that the tax rate increases as a company's taxable income rises. Tax rates may also vary from year to year, depending on government tax decisions. It is important to consult Revenu Québec for official updated tax rates.

Business tax deductions and credits

The Quebec tax system offers a variety of business deductions and tax credits, designed to encourage specific economic activities, support innovation and research, and promote hiring and investment in certain regions of Quebec.

You’ll need to learn more about these deductions and credits to figure out whether you meet their eligibility criteria. Tax credits for Quebec businesses include the Scientific Research and Experimental Development (SR&ED) tax credit, the Refundable Tax Credit for Québec Film and Television Production Services, and the Digital Transformation of Print Media Companies tax credit.

Benefits and conditions surrounding tax credits

Tax credits offer significant advantages to businesses, by reducing their tax burden in the form of tax refunds, tax reductions or transferable credits.

Eligibility requirements vary for each tax credit. Companies must usually prove that they are involved in certain activities or that they hire a specific type of worker (for example) to qualify. It's essential to learn about each tax credit to be aware of its benefits and conditions.

To find out which tax credits your company may be eligible for, contact us today !

A variable tax rate according to your sector and income

There are a few steps remaining to determine the exact tax rate for your small business. Remember that a corporate tax specialist can help you file your Quebec income tax returns accurately and efficiently.

Determine your tax bracket based on your income

Quebec tax brackets include a special distinction for SMBs. Tax rates for the first $500,000 of "active" annual 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%.

Manufacturing SMBs receive an additional reduction

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, 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 SMBs (26.5%).

Personal service businesses: a special situation

A personal services business is a corporation created so that a person who would otherwise be considered an employee of an individual is now the employee of a business. This type of small business is not subject to the federal tax reduction and has a tax rate of 33%.      

The tax rate in Quebec remains the same (11.5%).

In total, the corporate tax rate for a personal services business is currently 44.5%.

Get professional help from our tax specialists

Quebec corporate taxation can be complex, and it requires an in-depth and up-to-date knowledge of all relevant laws and regulations. To be sure that your company meets its tax obligations, maximizes its tax benefits and avoids tax disputes, call on business tax experts.

The T2inc team includes corporate tax specialists in Quebec and across Canada. Our experienced accountants understand the particularities of the Quebec tax system and corporate federal tax regulations.

When you choose us, you benefit from several advantages. We’ll help you optimize your tax situation by identifying all deductions, tax credits and tax strategies applicable to your business, and we'll also help you prepare and submit your tax returns, ensuring that they are accurate, legal and complete.