Small Business Deduction (SBD)
Last Update: April 27, 2025
Canada
Small business tax credit
Small Business Deduction (SBD) at a glance
Eligible Funding
- No Condition
Timeline
- Open Date : November 14, 2019
Financing Type
Tax Credits
Eligible Industries
- All industries
Grant Providers
- Canada Revenue Agency (CRA)
- Government of Canada
Status
Open
Overview of the Small Business Deduction (SBD) program
You can get a reduced tax rate on your first $500, 000 in revenues if you own a Canadian-controlled small business corporation.
Financing terms and conditions
The Small Business Deduction (SBD) provides a reduction in corporate income tax for Canadian-controlled private corporations (CCPCs) based on specific income and business limits. These limits and reductions are detailed within the framework established by the 2018 Budget changes.
- The SBD results in a reduced corporate income tax rate by applying the SBD rate to the lesser of the corporation's income from active business, taxable income, or business limit.
- The business limit, set at $500,000, is prorated if the year is shorter than 51 weeks and must be allocated among associated corporations.
- A taxable capital business limit reduction is applied if the taxable capital employed in Canada is between $10 million and $15 million.
- A passive income business limit reduction, calculated using a specified formula, applies when adjusted aggregate investment income is between $50,000 and $150,000.
- The anti-avoidance rules prevent CCPCs from reducing the passive income business limit reduction by transferring income to non-associated related corporations.
- Effective for taxation years beginning after 2018 and potentially earlier if the prior year was shortened to defer rule changes.
Eligible projects & activities
Examples of admissible projects:
$ 25,000
Creating a financial literacy program for young adults in underserved communities
$ 35,000
Launching a mobile app to connect service providers with local customers
$ 15,000
Establishing a community garden to provide fresh produce and educational programs
$ 30,000
Providing renewable energy solutions to rural areas through solar panel installations
$ 40,000
Launching an e-commerce platform for artisanal products made in Canada
$ 50,000
Developing a comprehensive financial software platform for local businesses
Eligibility criteria of the Small Business Deduction (SBD) program
The eligibility criteria for the small business deduction (SBD) grant include being a Canadian-controlled private corporation (CCPC) with a business limit and conditions related to investment income and taxable capital employed in Canada.
- Must be a Canadian-controlled private corporation (CCPC).
- Business limit for a taxation year is $500,000, prorated for the number of days in the year if there are less than 51 weeks in the year.
- Business limit must be allocated amongst corporations that are associated in a taxation year.
- Business limit is reduced by any portion that the CCPC assigns to another corporation.
- CCPC’s remaining business limit is reduced on a straight-line basis if the combined taxable capital employed in Canada of the CCPC and any associated corporations is between $10 million and $15 million.
- Business limit is phased-out if the adjusted aggregate investment income of the CCPC and any associated corporations is between $50,000 and $150,000.
- Reduction in business limit for a taxation year will be the greater of its taxable capital business limit reduction and its passive income business limit reduction for the year.
Who is eligible?
The Small Business Deduction (SBD) is available for Canadian-controlled private corporations (CCPCs) that meet specific criteria set out by the Canada Revenue Agency. Eligible types of companies must engage in active business primarily in Canada and fall within certain income and capital thresholds.
- Canadian-controlled private corporations (CCPCs)
- Corporations engaged in active business carried on in Canada
- Corporations with business limits allocated among associated corporations
- Corporations within the taxable capital range of $10 million to $15 million
- Corporations with adjusted aggregate investment income between $50,000 and $150,000
Eligible expenses
There are eligible expenses for this grant. Applicants can claim expenses related to active business carried out in Canada, excluding certain income and exceeding certain losses. Eligible expenses include:
- Income for the year from an active business carried on in Canada
- Taxable income for the year
- Business limit for the year
Eligibility criteria of the Small Business Deduction (SBD) program
There are evaluation and selection criteria for this grant. The evaluation and selection criteria include:
- Calculation of the adjusted aggregate investment income of the corporation and any associated corporations
- Calculation of the passive income business limit reduction for the corporation
- Demonstration that passive investments were not transferred to related corporations to avoid the passive income business limit reduction
- Evidence of active assets and their use in the corporation's active business
- Avoidance of transactions aimed at deferring the application of the SBD rule changes
Additional information
Here are additional relevant details regarding the Small Business Deduction (SBD):
- The changes to the SBD rules are applicable to taxation years that begin after 2018 unless there is a specific exception.
- Corporations should maintain comprehensive documentation to support the purpose and nature of transactions, particularly if involved in events that affect taxation year lengths or involve transfers to related corporations.
- Approval from the CRA is required to change a corporation's fiscal year-end, which necessitates submitting a letter with detailed reasons for the change.
- An anti-avoidance rule is in place to prevent corporations from reducing their passive income business limit through the transfer of passive investments to non-associated related corporations.
- The CRA provides continuous updates on policy changes on their official website, so checking for the latest information is recommended.
- Implementation of the changes may affect the calculations for both the usual business limit reduction and the passive income business limit reduction; the greater reduction applies.
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