Published | Category : Income tax - businesses

Adjustment to the Refocusing of the Small Business Deduction on Corporations in the Primary and Manufacturing Sectors

Changes to the small business deduction (SBD) for a taxation year beginning after December 31, 2016, were announced in the Budget Speech of March 26, 2015. The changes specifically involved the refocusing of the SBD on corporations in the primary and manufacturing sectors, and the addition of qualification criteria. One qualification criterion will be replaced, as explained below.

Replacement of the criterion concerning the minimum number of employees by a criterion concerning the hours worked

The qualification criterion concerning the minimum number of employees will be replaced by a qualification criterion concerning the minimum number of hours worked.

A corporation will meet the qualification criterion concerning the minimum number of hours worked for a taxation year if, as applicable:

  • during the taxation year, its employees worked at least 5,500 hours;
  • during the previous taxation year, the number of hours worked by its employees and the employees of the corporations with which it is associated total at least 5,500 hours.

The following rules will apply in respect of this criterion:

  • a maximum of 40 hours per week per worker may be considered;
  • the hours worked must be paid at the time the SBD is claimed;
  • the hours worked for a corporation by a person participating in its body of shareholders, either directly or indirectly, will also be counted, without regard to whether they are remunerated;
  • the 5,500 hours that apply to the current year will be based on a complete taxation year and this threshold will be reduced proportionally in the case of a shorter fiscal period (this reduction of the threshold will not apply for the previous taxation year);
  • to calculate the hours of the previous taxation year, the corporation must consider the taxation years ended during the calendar year preceding the year during which the corporation's taxation year ends;
  • each corporation in a group of associated corporations must count the hours worked by its employees or a person participating in its body of shareholders—more specifically, the hours worked by a subcontractor for a corporation may not be counted by the corporation, but may be counted by the subcontractor.

Corporation in the primary or manufacturing sector

A corporation in the primary or manufacturing sector can claim an SBD at the highest SBD rate obtained, using either the qualification criterion concerning the minimum number of hours worked or the qualification criterion based on its level of activity in the primary or manufacturing sector.

Application date

Replacement of this qualification criterion will apply for a taxation year beginning after December 31, 2016.

For more information, see pages A.35 to A.37 of the document entitled Additional Information 2016-2017 (PDF – 2.88 MB), published by the Ministère des Finances.

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