CANADA Law and Practice Contributed by: Marc-André Godard, Pierre Allard, Isabelle Gagnon and Mehrez Houacine, BCF Business Law LLP
able income. However, private corporations may be subject to a refundable tax on dividends received from corporations that are not “connected”, or on divi - dends received that entitled the payer corporation to a dividend refund. The dividends received would then be subject to a 38.33% tax, which is refundable upon the payment of taxable dividends at a rate of CAD1 of tax reimbursed to the receiver corporation for each CAD2.61 of dividends paid to its shareholders. A payer corporation is “connected” to the receiver corporation if the latter (or persons not dealing at arm’s length with the latter) controls the payer corpo - ration or if the receiver corporation owns more than 10% of the shares of the payer corporation in votes and value. As of 2026, the federal tax rates applicable to individu - als are as follows: • 14% on the first CAD58,523 of taxable income; plus • 20.5% on the portion of taxable income between CAD58,524 and CAD117,045; plus • 26% on the portion of taxable income between CAD117,046 and CAD181,440; plus • 29% on the portion of taxable income between CAD181,441 and CAD258,482; plus • 33% on the portion of taxable income over CAD258,482. The net income of a partnership is taxable at the part - ner level, at the rates applicable to the partner, since it is a flow-through entity. Corporations and individuals are also subject to pro - vincial income tax.
es incurred for the purpose of earning business or property income. This usually covers salaries, insur - ance expenses, maintenance and repairs, licences, accounting and legal fees, and advertising expenses. The net income reported on financial statements will often not be the same as the net income calculated for tax purposes, since some income and expenses reported in financial statements may not be used in the calculation of net income for tax purposes. Income is generally reported using the accrual method – only farmers, fishermen and self-employed commission sales agents are allowed to use the cash method. 2.2 Technology Investments The Scientific Research and Experimental Develop - ment (SR&ED) programme encourages all Canadi - an businesses, regardless of their size or sector, to develop new, improved or technologically advanced products by taking advantage of three tax incentives: • an income tax deduction; The ITC amount and the availability of a refund under the SR&ED programme depend on whether the cor - poration qualifies as a CCPC, and on the qualifying expenditures incurred in Canada (wages, machinery, equipment, etc). Unused ITCs may be carried back three years or forward up to 20 years. Provincial incen - Canadian film or video production tax credits are avail - able for certain expenses for certified films or videos. Also, an accelerated investment incentive was intro - duced in 2018 that provides for an enhanced first-year depreciation deduction on certain depreciable prop - erties, and for the immediate write-off of the full cost of machinery and equipment for manufacturing and processing businesses and of the full cost of specified clean energy equipment for clean energy businesses. These deductions are in their phase-out period and will be progressively reduced from 2024 to 2027. tives are also available. 2.3 Special Incentives • an investment tax credit (ITC); and • a refund, in specific circumstances.
2. Corporate Tax Regime 2.1 Taxable Profits
The taxable income of a corporation is composed of business income, property income (interest, rent, royalties, and dividends) and 50% of capital gains (see 2.7 Capital Gains ), and is the result of its income for the year minus allowable deductions. The deduc - tions a corporation is allowed to claim are expens -
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