Published | Category: Income tax - businesses

Corporate Income Tax Changes

Corporate income tax rates will change through a reduction of the general tax rate, adjustment of the small business deduction (SBD) and a refocusing of the SBD on corporations in the primary and manufacturing sectors, and the extension of the additional deduction for small and medium-sized manufacturing businesses to small and medium-sized businesses (SMBs) in the primary and manufacturing sectors.

General tax rate

From 2017 to 2020, the general tax rate will be gradually reduced by 0.4 of a percentage point. The rate reductions will take effect on January 1 of each of the aforementioned years.

The general corporate tax rate will be reduced from the current rate of 11.9% to 11.8% in 2017, 11.7% in 2018, 11.6 % in 2019 and, finally, 11.5% in 2020.

SBD

Changes will be made to the SBD to adjust the rate of the deduction in view of the reduction of the general tax rate and to refocus the SBD on certain types of corporations.

The minimum income tax rate for small corporations will be maintained at all times at 8%. For all practical purposes, the current SBD rate of 3.9% will be gradually reduced by 0.4 of a percentage point in the same manner and within the same time frame as the general tax rate is to be reduced, thereby maintaining the minimum rate at 8%.

Furthermore, only some of the corporations that currently qualify for the SBD will be able to continue to claim it, in whole or in part. They include, for a taxation year,

  • any corporation that employs more than three full-time employees in its business throughout the year or that would usually have used the services of more than three full-time employees had financial, administrative, maintenance, management or other similar services not been provided to the corporation in the year by a corporation associated with it; and 
  • any corporation in the primary or manufacturing sector.

A corporation that, for a taxation year, meets the requirement by having the minimum number of such employees will be able to claim the SBD at the maximum rate for that taxation year.

However, a corporation in the primary or manufacturing sector that fails to meet the requirement by not having the minimum number of such employees will nonetheless be able to claim the SBD according to the proportion of its activities in the primary or manufacturing sector. Primary sector activities are those attributable to agriculture, forestry, fishing, hunting, mining, quarrying, and oil and gas extraction, whereas manufacturing sector activities are those that constitute manufacturing and processing activities.

A corporation in the primary or manufacturing sector whose proportion of activities in the primary sector or in the manufacturing and processing sector, for a particular taxation year, is 50% or more will be able to claim the SBD at the maximum rate for that taxation year.

If the proportion of such activities for a particular taxation year is between 50% and 25%, a corporation in the primary or manufacturing sector will be able to claim, for that taxation year, the SBD at a rate that is reduced linearly.

The changes relating to the refocusing of the SBD on corporations in the primary and manufacturing sectors will apply to taxation years beginning after December 31, 2016.

Additional deduction for SMBs

Changes will be made to the additional deduction for SMBs so that it becomes the additional deduction for SMBs in the primary and manufacturing sectors. The activities that are considered primary sector activities or manufacturing sector activities for purposes of the SBD are also considered such activities for purposes of the additional deduction for SMBs in the primary and manufacturing sectors.

A corporation in the primary or manufacturing sector whose proportion of activities in the primary sector or in the manufacturing and transformation sector, for a particular taxation year, is 50% or more will be able to claim the additional deduction for SMBs in the primary and manufacturing sectors at the rate of 4%.

If the proportion of such activities for a particular taxation year is between 50% and 25%, the rate of the additional deduction for SMBs in the primary and manufacturing sectors that a corporation may claim will be reduced linearly.

These changes will apply to taxation years beginning after December 31, 2016.

For more information, see pages A.37 to A.44 of the document entitled Additional Information 2015-2016 (PDF – 1.96 Mb) published by the Ministère des Finances.

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