One of the most common reasons people incorporate is the corporate tax rate, and specifically the low rate that small Canadian businesses can access. It is a real advantage, but it is also widely misunderstood as a way to simply pay less tax. Here is how corporate tax rates in Canada actually work.
Corporations have two rates
A Canadian corporation is taxed at two possible rates on its active business income: a general rate, and a lower small business rate. Which one applies depends on whether the income qualifies for the small business deduction.
The small business deduction
The small business deduction lowers the federal tax rate to 9 percent on the first $500,000 of active business income earned by a Canadian-controlled private corporation. That $500,000 is called the business limit. Income above it, or income that does not qualify, is taxed at the higher general rate. The limit can be reduced in some situations, such as when a corporation has large amounts of passive investment income or significant capital.
Combined rates, as of 2026
Because both the federal government and the province tax corporate income, the rate you actually pay is a combined figure. Rounded, current rates look like this.
| Jurisdiction | Small business rate | General rate |
|---|---|---|
| Federal only | 9% | 15% |
| Ontario (combined) | 12.2% | 26.5% |
The catch: it is deferral, not a discount
The low corporate rate is not free money. When you take earnings out of the corporation to spend personally, as salary or dividends, you pay personal tax on top. The Canadian system is designed so that, roughly, you end up in a similar place whether you earn income personally or through a corporation and pull it all out. The real benefit is timing: money you leave in the corporation is taxed at the low rate and can be reinvested or deferred until you need it.
That is why the decision of how to pay yourself matters so much, and why salary versus dividends is its own topic.
Where Korporex fits
The small business rate is only available to a corporation, so accessing it starts with incorporating. Korporex files your federal or Ontario incorporation online, which is the step that makes the small business deduction available to your business.