If you have a small business, there is a chance you might be able to file for the Small Business Deduction (SBD) provided you meet the requirements to do so. If you are a new business and this is your first time hearing about this, you have stumbled onto the right article! You may want to review the criteria summarized below to see if you qualify for this tax deduction. 

Is my business qualified for the Small Business Deduction? 

Based on the T2 Corporation Income Tax Guide, Canadian-controlled private corporations (CCPC) and businesses with a taxable capital of $10 to $15 million from the previous year may qualify for a small business deduction (SBD).  If your business has a taxable capital income of more than $15 million from the preceding fiscal year, you may not qualify for the SBD.  

What is the business limit? 

According to Canadian tax laws, a business limit may apply to a business’s income tax reductions when they file their corporate tax returns.  A CCPC’s business limit for a taxation year is $500,000. When taxable capital reaches $10 million, this limit is reduced.  It is prorated for the number of days in the year if there are less than 51 weeks in the year. The business limit can be shared with other associated companies. 

How to calculate the Small Business Deduction 

Calculating the SBD starts by multiplying the SBD rate by the least of: 

  •       The income from the active business carried out in Canada (which can be found on line 400)
  •       The taxable income (which is on line 405)
  •       The business limit (on line 410)



Filing taxes is a tedious process that requires close attention to detail. If a business owner is confused as to what should be included in the calculation of their income statements, or if they are qualified for the Small Business Deduction, seeking advice and assistance from a bookkeeping professional or accountant is essential. 

You may be at a loss to determine what type of income you should include as part of your income tax return when you apply for the Small Business Deduction. There are some types of income that may not be included in your taxable income based on the T2 Corporation Income Tax Guide. An example of this is investment income, but there can be others. It may be quite tricky to figure out which types of business income you can include in the calculation, so hiring an accountant will help to eliminate this confusion. 

If you are looking for a skilled accountant to help you with your taxes, the skilled professionals at Blueprint Accounting can help you out. We specialize in bookkeeping services for small businesses. Contact us and let us take the reins for anything accounting-related. 


Need bookkeeping, tax, or any other accounting services? Send us a message!