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Published | Category : Income tax - businesses

Adjustment to the Calculation of Employee Remunerated Hours: Small Business Deduction

A Canadian-controlled private corporation can, under certain conditions, benefit from a reduced income tax rate for its taxation year. This measure is called the “small business deduction” (SBD) and applies to the first income bracket of an eligible business operated by the corporation in Canada.

A corporation may not be entitled to the SBD or may be required to use a reduced rate in the calculation of the SBD if it does not meet certain eligibility requirements with respect to the number of remunerated hours of its employees and the proportion of activities in the primary and manufacturing sectors.

A corporation can use the highest rate to calculate the SBD for a taxation year if it meets one of the following two conditions:

  • For the taxation year, the remunerated hours of its employees totalled at least 5,500 hours.
  • For the preceding taxation year, the remunerated hours of its employees and those of the corporations with which it is associated totalled at least 5,500 hours.

However, given the exceptional COVID-19 health crisis, the calculation of the remunerated hours of a corporation's employees has been adjusted. Therefore, if all or part of the corporation's taxation year is included in the period from March 15 to June 29, 2020, the number of hours for the taxation year is deemed to be equal to the result of the following calculation: the number of remunerated hours of the corporation's employees for the taxation year multiplied by the ratio of 365 to the number of days in the taxation year that are not included in the period.

The adjustment does not apply to the number of remunerated hours calculated for the preceding taxation year. The adjustment also applies to partnerships.

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