Under certain conditions, a Canadian-controlled private corporation (CCPC) can benefit from a reduction in the 11.5% general income tax rate. The reduction, known as the small business deduction (SBD), applies to the first $500,000 of annual income from an eligible business carried on in Canada by the CCPC (the business limit). The business limit is gradually reduced if the corporation's paid-up capital and that of any associated corporations is between $10 million and $50 million and the adjusted aggregate investment income of the corporation and any associated corporations is between $50,000 and $150,000. It is totally eliminated when the paid-up capital reaches $50 million or the adjusted aggregate investment income reaches $150,000.

For taxation years beginning after April 29, 2026, the SBD rate will be increased from 8.3% to 9.3%. The minimum tax rate applicable to eligible income will be reduced from 3.2% to 2.2%.

The other terms and conditions of the SBD, such as the linear reduction of the SBD rate based on the number of remunerated hours and the proportion of primary and manufacturing sector activities, will remain unchanged.