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January 2002

Faster Corporate Tax Rate Reduction for Small Business

As of January 2001 the corporate tax rate was reduced to 21 per cent on business income between $200,000 and $300,000.

This measure is only one part of the Government of Canada’s Five-Year Tax Reduction Plan – the largest tax cut in the country’s history. Under this plan, personal income taxes were reduced and other tax measures were put in place to reward entrepreneurship and stimulate economic growth (see below for a list of tax reduction measures).

What About Business Income in Excess of $300,000?

Another part of the tax reduction plan is to significantly reduce the 28-per-cent general corporate tax rate to 21 per cent by 2004, starting with a 1-point cut as of January 2001, a 2-point cut in January 2002, and followed by further 2-point cuts in each of the next two years. This benefits both larger companies and also small businesses that have income that is subject to the general corporate tax rate.

The table below summarizes these tax reductions.

Federal Tax Rate Reductions for Small Business – 2001-2004

For Further Information

For general information about federal tax cuts, visit the Department of Finance Canada Web site at www.fin.gc.ca. Information is also available from the Canada Customs and Revenue Agency (CCRA): visit the CCRA’s small business Web page at www.ccra.gc.ca/business; or phone the business enquiries section of your local tax services office (www.ccra.gc.ca/tso) or the CCRA’s toll-free business enquiries line at 1 800 959-5525.

About the Department of Finance Canada’s Tax Bulletin Series

This is part of a series of bulletins designed to give Canadians useful information about individual elements of the federal government’s Five-Year Tax Reduction Plan. Bulletins on tax measures and other publications may be viewed on the Web at www.fin.gc.ca, and copies may be obtained by calling the Department of Finance Distribution Centre at (613) 995-2855.

Below is a list of the tax measures included in the plan:

• Personal income tax rates have been reduced for all taxpayers, and the 5-per-cent deficit reduction surtax has been eliminated.

• The Canada Child Tax Benefit (CCTB) for low- and middle-income families with children has been substantially increased.

• Full indexation has been restored to the personal income tax system to protect taxpayers against automatic tax increases caused by inflation and to preserve the real value of benefits such as the CCTB and the goods and services tax/harmonized sales tax credit.

• The amounts on which the education tax credit is based have doubled.

• The amounts on which the disability tax credit, caregiver tax credit and infirm dependant tax credit are based have all increased.

• The 28-per-cent general corporate tax rate has already been reduced to 25 per cent, and has been legislated to fall to 21 per cent by 2004.

• As of January 2001 the 28-per-cent general corporate tax rate was reduced to 21 per cent on small business income between $200,000 and $300,000.

• The capital gains inclusion rate was reduced from two-thirds to one-half for dispositions after October 17, 2000. It had previously been reduced from three-quarters to two-thirds for dispositions after February 27, 2000.

• A tax-free rollover has been introduced to allow individuals to defer the tax on capital gains from the sale of shares in eligible small business corporations to the extent that the proceeds are reinvested in shares of another eligible small business.

• As of January 2001 self-employed individuals may deduct the portion of Canada Pension Plan and Quebec Pension Plan contributions that represents the employer’s share.