Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Act current to 2015-07-09 and last amended on 2015-06-30. Previous Versions

Marginal note:Deduction from corporation tax
  •  (1) There may be deducted from the tax otherwise payable by a corporation under this Part for a taxation year an amount equal to 10% of the corporation’s taxable income earned in the year in a province.

  • Marginal note:Crown agents

    (3) Notwithstanding subsection 124(1), no deduction may be made under this section from the tax otherwise payable under this Part for a taxation year by a corporation in respect of any taxable income of the corporation for the year that is not, because of an Act of Parliament, subject to tax under this Part or by a prescribed federal Crown corporation that is an agent of Her Majesty.

  • Marginal note:Definitions

    (4) In this section,

    “province”

    « province »

    “province” includes the Newfoundland offshore area and the Nova Scotia offshore area;

    “taxable income earned in the year in a province”

    « revenu imposable gagné au cours de l’année dans une province »

    “taxable income earned in the year in a province” means the amount determined under rules prescribed for the purpose by regulations made on the recommendation of the Minister of Finance.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 124;
  • 1994, c. 7, Sch. VIII, s. 62.
Marginal note:Small business deduction
  •  (1) There may be deducted from the tax otherwise payable under this Part for a taxation year by a corporation that was, throughout the taxation year, a Canadian-controlled private corporation, an amount equal to the corporation’s small business deduction rate for the taxation year multiplied by the least of

    • (a) the amount, if any, by which the total of

      • (i) the total of all amounts each of which is the income of the corporation for the year from an active business carried on in Canada (other than the income of the corporation for the year from a business carried on by it as a member of a partnership), and

      • (ii) the specified partnership income of the corporation for the year

      exceeds the total of

      • (iii) the total of all amounts each of which is a loss of the corporation for the year from an active business carried on in Canada (other than a loss of the corporation for the year from a business carried on by it as a member of a partnership), and

      • (iv) the specified partnership loss of the corporation for the year,

    • (b) the amount, if any, by which the corporation’s taxable income for the year exceeds the total of

      • (i) 100/28 of the total of the amounts that would be deductible under subsection 126(1) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to sections 123.3 and 123.4,

      • (ii) the amount determined by multiplying the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by it, if those amounts were determined without reference to section 123.4, by the relevant factor for the year, and

      • (iii) the amount, if any, of the corporation’s taxable income for the year that is not, because of an Act of Parliament, subject to tax under this Part, and

    • (c) the corporation’s business limit for the year.

  • Marginal note:Small business deduction rate

    (1.1) For the purpose of subsection (1), a corporation’s small business deduction rate for a taxation year is the total of

    • (a) that proportion of 17% that the number of days in the taxation year that are in 2015 is of the number of days in the taxation year,

    • (b) that proportion of 17.5% that the number of days in the taxation year that are in 2016 is of the number of days in the taxation year,

    • (c) that proportion of 18% that the number of days in the taxation year that are in 2017 is of the number of days in the taxation year,

    • (d) that proportion of 18.5% that the number of days in the taxation year that are in 2018 is of the number of days in the taxation year, and

    • (e) that proportion of 19% that the number of days in the taxation year that are after 2018 is of the number of days in the taxation year.

  • Marginal note:Business limit

    (2) For the purpose of this section, a corporation’s business limit for a taxation year is $500,000 unless the corporation is associated in the taxation year with one or more other Canadian-controlled private corporations, in which case, except as otherwise provided in this section, its business limit is nil.

  • Marginal note:Associated corporations

    (3) Notwithstanding subsection (2), if all the Canadian-controlled private corporations that are associated with each other in a taxation year file with the Minister in prescribed form an agreement that assigns for the purpose of this section a percentage to one or more of them for the year, the business limit for the year of each of the corporations is

    • (a) if the total of the percentages assigned in the agreement does not exceed 100%, $500,000 multiplied by the percentage assigned to that corporation in the agreement; and

    • (b) in any other case, nil.

  • Marginal note:Failure to file agreement

    (4) If any of the Canadian-controlled private corporations that are associated with each other in a taxation year has failed to file with the Minister an agreement as contemplated by subsection (3) within 30 days after notice in writing by the Minister has been forwarded to any of them that such an agreement is required for the purpose of any assessment of tax under this Part, the Minister shall, for the purpose of this section, allocate an amount to one or more of them for the taxation year. The total amount so allocated must equal the least of the amounts that would, if none of the corporations were associated with any other corporation during the year and if this Act were read without reference to subsections (5) and (5.1), be the business limits of the corporations for the year.

  • Marginal note:Special rules for business limit

    (5) Notwithstanding subsections 125(2) to 125(4),

    • (a) where a Canadian-controlled private corporation (in this paragraph referred to as the “first corporation”) has more than one taxation year ending in the same calendar year and it is associated in 2 or more of those taxation years with another Canadian-controlled private corporation that has a taxation year ending in that calendar year, the business limit of the first corporation for each taxation year ending in the calendar year in which it is associated with the other corporation that ends after the first such taxation year ending in that calendar year is, subject to the application of paragraph 125(5)(b), an amount equal to the lesser of

      • (i) its business limit determined under subsection 125(3) or 125(4) for the first such taxation year ending in the calendar year, and

      • (ii) its business limit determined under subsection 125(3) or 125(4) for the particular taxation year ending in the calendar year; and

    • (b) where a Canadian-controlled private corporation has a taxation year that is less than 51 weeks, its business limit for the year is that proportion of its business limit for the year determined without reference to this paragraph that the number of days in the year is of 365.

  • Marginal note:Business limit reduction

    (5.1) Notwithstanding subsections 125(2) to 125(5), a Canadian-controlled private corporation’s business limit for a particular taxation year ending in a calendar year is the amount, if any, by which its business limit otherwise determined for the particular year exceeds the amount determined by the formula

    A × (B/$11,250)

    where

    A 
    is the amount that would, but for this subsection, be the corporation’s business limit for the particular year; and
    B 
    is the amount determined by the formula

    0.225% × (D – $10 million)

    where

    D 
    is
    • (a) if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the preceding taxation year,

    • (b) if, in the particular taxation year, the corporation is not associated with any corporation but was associated with one or more corporations in the preceding taxation year, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the particular taxation year, or

    • (c) if, in the particular taxation year, the corporation is associated with one or more particular corporations, the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year.

  • Marginal note:Corporate partnerships

    (6) Where in a taxation year a corporation is a member of a particular partnership and in the year the corporation or a corporation with which it is associated in the year is a member of one or more other partnerships and it may reasonably be considered that one of the main reasons for the separate existence of the partnerships is to increase the amount of a deduction of any corporation under subsection 125(1), the specified partnership income of the corporation for the year shall, for the purposes of this section, be computed in respect of those partnerships as if all amounts each of which is the income of one of the partnerships for a fiscal period ending in the year from an active business carried on in Canada were nil except for the greatest of those amounts.

  • Marginal note:Corporation deemed member of partnership

    (6.1) For the purposes of this section, a corporation that is a member, or is deemed by this subsection to be a member, of a partnership that is a member of another partnership shall be deemed to be a member of the other partnership and the corporation’s share of the income of the other partnership for a fiscal period shall be deemed to be equal to the amount of that income to which the corporation was directly or indirectly entitled.

  • Marginal note:Specified partnership income deemed nil

    (6.2) Notwithstanding any other provision of this section, where a corporation is a member of a partnership that was controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation) or by any combination thereof at any time in its fiscal period ending in a taxation year of the corporation, the income of the partnership for that fiscal period from an active business carried on in Canada shall, for the purposes of computing the specified partnership income of a corporation for the year, be deemed to be nil.

  • Marginal note:Partnership deemed to be controlled

    (6.3) For the purposes of subsection 125(6.2), a partnership shall be deemed to be controlled by one or more persons at any time if the total of the shares of that person or those persons of the income of the partnership from any source for the fiscal period of the partnership that includes that time exceeds 1/2 of the income of the partnership from that source for that period.

  • Marginal note:Definitions

    (7) In this section,

    “active business carried on by a corporation”

    « entreprise exploitée activement »

    “active business carried on by a corporation” means any business carried on by the corporation other than a specified investment business or a personal services business and includes an adventure or concern in the nature of trade;

    “Canadian-controlled private corporation”

    « société privée sous contrôle canadien »

    “Canadian-controlled private corporation” means a private corporation that is a Canadian corporation other than

    • (a) a corporation controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), by one or more corporations described in paragraph (c), or by any combination of them,

    • (b) a corporation that would, if each share of the capital stock of a corporation that is owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation described in paragraph (c) were owned by a particular person, be controlled by the particular person,

    • (c) a corporation a class of the shares of the capital stock of which is listed on a designated stock exchange, or

    • (d) in applying subsection (1), paragraphs 87(2)(vv) and (ww) (including, for greater certainty, in applying those paragraphs as provided under paragraph 88(1)(e.2)), the definitions “excessive eligible dividend designation”, “general rate income pool” and “low rate income pool” in subsection 89(1) and subsections 89(4) to (6), (8) to (10) and 249(3.1), a corporation that has made an election under subsection 89(11) and that has not revoked the election under subsection 89(12);

    “income of the corporation for the year from an active business”

    « revenu de la société pour l’année provenant d’une entreprise exploitée activement »

    “income of the corporation for the year from an active business” means the total of

    • (a) the corporation’s income for the year from an active business carried on by it including any income for the year pertaining to or incident to that business, other than income for the year from a source in Canada that is a property (within the meaning assigned by subsection 129(4)), and

    • (b) the amount, if any, included under subsection 12(10.2) in computing the corporation’s income for the year;

    “personal services business”

    « entreprise de prestation de services personnels »

    “personal services business” carried on by a corporation in a taxation year means a business of providing services where

    • (a) an individual who performs services on behalf of the corporation (in this definition and paragraph 18(1)(p) referred to as an “incorporated employee”), or

    • (b) any person related to the incorporated employee

    is a specified shareholder of the corporation and the incorporated employee would reasonably be regarded as an officer or employee of the person or partnership to whom or to which the services were provided but for the existence of the corporation, unless

    • (c) the corporation employs in the business throughout the year more than five full-time employees, or

    • (d) the amount paid or payable to the corporation in the year for the services is received or receivable by it from a corporation with which it was associated in the year;

    “specified investment business”

    « entreprise de placement déterminée »

    “specified investment business”, carried on by a corporation in a taxation year, means a business (other than a business carried on by a credit union or a business of leasing property other than real or immovable property) the principal purpose of which is to derive income (including interest, dividends, rents and royalties) from property but, except where the corporation was a prescribed labour-sponsored venture capital corporation at any time in the year, does not include a business carried on by the corporation in the year where

    • (a) the corporation employs in the business throughout the year more than 5 full-time employees, or

    • (b) any other corporation associated with the corporation provides, in the course of carrying on an active business, managerial, administrative, financial, maintenance or other similar services to the corporation in the year and the corporation could reasonably be expected to require more than 5 full-time employees if those services had not been provided;

    “specified partnership income”

    « revenu de société de personnes déterminé »

    “specified partnership income” of a corporation for a taxation year means the amount determined by the formula

    A + B

    where

    A 
    is the total of all amounts each of which is an amount in respect of a partnership of which the corporation was a member in the year equal to the lesser of
    • (a) the total of all amounts each of which is an amount in respect of an active business carried on in Canada by the corporation as a member of the partnership determined by the formula

      G - H

      where

      G 
      is the total of all amounts each of which is the corporation’s share of the income (determined in accordance with subdivision j of Division B) of the partnership for a fiscal period of the business that ends in the year, or an amount included in the corporation’s income for the year in respect of the business under any of subsections 34.2(2), (3) and (12), and
      H 
      is the total of all amounts deducted in computing the corporation’s income for the year from the business (other than amounts that were deducted in computing the income of the partnership from the business) or in respect of the business under subsection 34.2(4) or (11), and
    • (b) the amount determined by the formula

      K/L × M

      where

      K 
      is the total of all amounts each of which is the corporation’s share of the income (determined in accordance with subdivision j of Division B) of the partnership for a fiscal period ending in the year from an active business carried on in Canada
      L 
      is the total of all amounts each of which is the income of the partnership for a fiscal period referred to in paragraph 125(7) “specified partnership income” (a) from an active business carried on in Canada, and
      M 
      is the lesser of
      • (i) $500,000, and

      • (ii) the product obtained when $1,370 is multiplied by the total of all amounts each of which is the number of days in a fiscal period of the partnership that ends in the year, and

    B 
    is the lesser of
    • (a) the total of the amounts determined in respect of the corporation for the year under subparagraphs 125(1)(a)(iii) and 125(1)(a)(iv), and

    • (b) the total of all amounts each of which is an amount in respect of a partnership of which the corporation was a member in the year equal to the amount determined by the formula

      N - O

      where

      N 
      is the amount determined in respect of the partnership for the year under paragraph (a) of the description of A, and
      O 
      is the amount determined in respect of the partnership for the year under paragraph (b) of the description of A;

    “specified partnership loss”

    « perte de société de personnes déterminée »

    “specified partnership loss” of a corporation for a taxation year means the total of all amounts each of which is an amount in respect of a partnership of which the corporation was a member in the year determined by the formula

    A + B

    where

    A 
    is the total of all amounts each of which is the corporation’s share of the loss (determined in accordance with subdivision j of Division B) of the partnership for a fiscal period ending in the year from an active business carried on in Canada by the corporation as a member of the partnership, and
    B 
    is the total of all amounts each of which is an amount determined by the formula

    G - H

    where

    G 
    is the amount determined for H in the definition “specified partnership income” in this subsection for the year in respect of the corporation’s income from an active business carried on in Canada by the corporation as a member of the partnership, and
    H 
    is the amount determined for G in the definition “specified partnership income” in this subsection for the year in respect of the corporation’s share of the income from the business.
  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 125;
  • 1994, c. 7, Sch. II, s. 100, Sch. VIII, s. 63;
  • 1995, c. 3, s. 35;
  • 1996, c. 21, s. 26;
  • 1998, c. 19, s. 145;
  • 2001, c. 17, s. 113;
  • 2003, c. 15, s. 79;
  • 2007, c. 2, ss. 33, 49, c. 35, ss. 68, 182;
  • 2009, c. 2, s. 39;
  • 2013, c. 34, ss. 126, 262, c. 40, s. 55;
  • 2015, c. 36, s. 11.