Coronavirus (COVID-19)

Click Coronavirus Disease (COVID-19) to see whether the measures adopted by Revenu Québec apply to the information on this page.

Published | Category : Income tax - businesses

Changes to the Small Business Deduction

Increase in the small business deduction rate

A Canadian-controlled private corporation can, under certain conditions, benefit from a reduced tax rate for a taxation year. This measure, known as the small business deduction (SBD), applies to the first $500,000 of annual income from an eligible business that the corporation operates in Canada.

For a qualifying corporation whose taxation year ends after March 25, 2021, the maximum SBD rate for the first $500,000 of annual income increased from 7.5% to 8.3%. Consequently, a minimum tax rate of 3.2% applies to the corporation's income that entitles it to the SBD.

Option for the number of remunerated hours

To fully benefit from the SBD, a corporation has to meet an eligibility requirement with respect to the number of remunerated hours of its employees or to the proportion of activities in the primary and manufacturing sectors.

A corporation meets the eligibility requirement with respect to the number of remunerated hours and can benefit from the highest SBD rate for a taxation year if it meets either of the following conditions:

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

As stated in Information Bulletin 2020-9 published by the Ministère des Finances, the calculation of the remunerated hours of a corporation's employees has been adjusted to take into account the exceptional circumstances caused by the COVID-19 pandemic. Accordingly, if all or part of a corporation's taxation year falls within the period from March 15 to June 29, 2020, that number of hours is deemed to be equal to the number of remunerated hours of the corporation's employees for the 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, adapted as required, also applies to the calculation of the number of remunerated hours of a partnership's employees for a fiscal period. This calculation takes into account the number of days in the fiscal period that are included in the period from March 15 to June 29, 2020.

A corporation also has an additional option with respect to the number of remunerated hours of its employees for a taxation year that ends after June 30, 2020, but before July 1, 2021. To determine its eligibility for the SBD or its SBD rate for that year, the corporation can apply to the Minister of Revenue to have the number of remunerated hours of its employees for the year correspond to the number of remunerated hours used to determine its eligibility for the SBD or its SBD rate for the previous taxation year. The corporation can apply in its income tax return or in a separate request if its income tax return is already filed.

A corporation that is a member of a partnership can exercise the same option and use the number of remunerated hours of the employees of the partnership for the previous fiscal period to determine if its share of the partnership's income for a taxation year entitles it to the SBD. To exercise the option, the corporation's taxation year must end in the partnership's fiscal period, after June 30, 2020, but before July 1, 2021.

Fair. For all.

One vision. Concrete actions.

Read all about how we work to support and inform you. Our vision and values guide us as we carry out our role.

Veuillez patienter