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• October 9, 2025

Have you ever wondered why some Canadian corporations pay way less tax than others, even though they make similarly-sized profits? You’ll find the answer in the Small Business Deduction (SBD). This tax reduction tool is not utilized by almost any businesses, costing them valuable tax savings of thousands of dollars every year. If your plan is to grow smart and take home more profits, then read what follows: it could mean the difference of thousands to your bottom line.

What is the Small Business Deduction?

The SBD is Canada’s largest tax reduction tool for incorporated small businesses. It reduces the federal corporate tax rate from 28% to 9% on the first $500,000 of active business income. You may even qualify for combined rates below 9–12% depending on your province. That could be thousands of dollars in savings for your business every year; the effect is directly to cash flow that you can use to reinvest and grow your business.

In Reality, Tax Savings: Your Savings

Sarah has an incorporated consulting business that earns $400,000 per year.

• Without SBD, she pays approximately $106,000 in taxes (26.5% rate)

• With SBD, she pays $48,800 (12.2% combined rate)

Total savings: $57,200 – which she reinvested straight into growing her business and new technology.

Do You Qualify? Important Rules and Traps

Requirements:

• Must be a Canadian-controlled private corporation (CCPC)

• Cannot be controlled by non-residents or public companies

• Must have earned active business income in Canada.

Limits:

• SBD limited to the first $500,000 (some provinces will be higher than $500,000 in 2025)

• Capital employed in Canada less than $15 million (phasing out after $10 million).

Passive Investment Income Rule:

• SBD is reduced if investment income is over $50,000 to a maximum $150,000 before elimination of SBD in total.

Maximize SBD: Proven Tax Planning Moves

• Choose the right mix: Use salary/dividend planning to control taxable income
• Monitor passive investing: Keep an eye on rental and investment income
• Plan big purchases: Structure asset buys to stay under SBD thresholds
• Watch for “association” traps: Sharing the $500k limit with related companies? Get expert help
• Leverage provincial benefits: Ontario maintains its SBD—even with higher passive income; other provinces are increasing their limits.

Provincial SBD Rates Snapshot

(* = New higher limits for 2025).

Stay Away from Expensive Mistakes

• Keep a record of your passive income during the year

• Calculate your capital employed before and after the asset/debt changes

• Monitor corporate groups and the association rules

• Update your tax knowledge – you know that the rates and thresholds change every year!

Taking Action: Claim Your SBD and Start Saving Now!

Recognizing the SBD is just step one. The majority of businesses will only experience the full benefit by partnering with a tax specialist or improving their own knowledge through recognized training.

Are you ready to fully understand corporate taxes, while ensuring you reap the benefits of your SBD?

Then check out ProFuture Tax Academy’s interactive Canadian tax workshops. They will show you how to recognize strategies, software, and compliance initiatives to retain your corporation’s lowest legal tax rate while maintaining compliance.

To learn more or to see when our next series of training will be available, please book a free info session on our website. Don’t let another tax season go by without extracting the benefits of the SBD to its fullest throughout the year – because we know your competitors are!