Encouraging small businesses to grow

Small businesses currently benefit from a reduced federal tax rate of 9 per cent on their first $500,000 of taxable income, compared to a general federal corporate tax rate of 15 per cent. A business no longer has access to this lower rate once its level of capital employed in Canada reaches $15 million. However, phasing out access to the lower tax rate too quickly—and then requiring a small business to pay more in tax—can discourage some businesses from continuing to grow and create jobs.

Budget 2022 proposes to phase out access to the small business tax rate more gradually, with access to be fully phased out when taxable capital reaches $50 million, rather than at $15 million.

The change is intended to encourage small business growth while allowing more medium-sized businesses to benefit from the small business rate.