04/18/2023
A Brief Overview of Private Company (CCPC) Taxes in Ontario
Private Company (CCPC) tax in Ontario can be complicated, but we'll try to explain it in terms that business owners can understand. You may be familiar with two types of taxes: Corporate Tax and Personal Tax, but how they interact can be confusing.
Integration of Corporate and Personal Tax
The Canadian Tax System is meant to be integrated. The basic idea is that whether you earn income directly from an employer as a salary or earn income from your business, you would pay about the same amount of tax if you earned this income in a corporation and distributed all the funds to yourself as the owner.
Corporate Tax Rates
There are different corporate tax rates depending on the type of income you earn. For a Canadian Controlled Private Corporation, different rates of corporate tax are applied to the streams of income.
Active Business Income
Most small businesses earn what is referred to as ‘Active Business Income.’ This is the income that the business earns from operations. At the time of writing this article, the combined provincial and federal rate for a Canadian Controlled Private Corporation eligible for the Small Business Deduction is 12.2%.
Re-investing
Re-investing in your company can help mitigate your taxes significantly. Currently, the Federal Government has two significant programs in place that allow businesses to make capital investments and receive a relatively high upfront deduction. In absence of these provisions, businesses making capital expenditures are only able to deduct the costs over a period of time. Depending on the type of capital purchase, this could take many years.
Combine Low Corporate Tax Rates with Re-investing
A growing business could significantly benefit from leaving excess funds above and beyond personal requirements in the business and thus avoiding unnecessary personal tax. Use the excess funds to invest in growing the business, ie: machinery or equipment that makes the business more competitive or enhances scale.
Detailed Approach
Determining the best outcome for your business involves upfront conversations, an understanding of your business, and your processes and financial acumen. This aspect is often overlooked by many advisors in the quest for achieving economies of scale by providing a one size fits all or industry approach.
