Ontario small business deduction (SBD)

• The deduction allows for a reduction of the Ontario basic income tax by applying a small business deduction rate of 8.3% to eligible Ontario small business income.
• The resulting effective Ontario corporate tax rate for eligible small business income is 3.2%.
• The deduction amount is phased out for corporations with taxable capital employed in Canada exceeding $10 million in the previous tax year, and is eliminated if this amount reaches $50 million or more.

• The applicant must be a Canadian-controlled private corporation (CCPC) throughout the tax year.
• The applicant's taxable capital employed in Canada in the previous tax year must not exceed $50 million (phased out over $10 million, completely eliminated at $50 million).
• The deduction applies to income classified as Ontario small business income.

Who is eligible?

• Canadian-controlled private corporations (CCPCs) operating in Ontario

Who is not eligible

• Corporations that are not Canadian-controlled private corporations (CCPCs) throughout the tax year.
• CCPCs (including associated corporations) with taxable capital employed in Canada of $50 million or more in the previous tax year.

Eligible geographic areas

• Ontario

• Step 1: Calculate Ontario Small Business DeductionUse Part 2 of Schedule 500, Ontario Corporation Tax Calculation, as a worksheet to determine your corporation's Ontario small business deduction amount.
• Step 2: Enter Deduction InformationOn line 402 of Schedule 5, Tax Calculation Supplementary – Corporations, enter the calculated Ontario small business deduction amount.
• Step 3: File Required Forms with T2 ReturnComplete the T2 Corporation Income Tax Return.
• Include Schedule 5 with your T2 return when you file with the Canada Revenue Agency.

• The Ontario small business deduction is calculated using the corporation's Ontario small business income and the small business deduction rate for the year.
• The reduction and elimination of the deduction are based on the taxable capital employed in Canada during the previous tax year.
• Ontario small business income is capped by the corporation's Ontario taxable income and is determined using the Ontario domestic factor.
• Schedule 500 is used as a worksheet for calculation and does not need to be filed with the corporate tax return.