The Tax Rate Structure

After arriving at taxable income, a tax rate is applied to determine the preliminary federal taxes payable. The rates differ between corporations and individuals:

  •  Individual rate are progressive; and
  •  Corporations are subject to tax at a flat tax rate depending on the type of corporation.

Corporate Rates Differ Depending on the Type of Corporation

Rather than shifting income from wealthy corporations to poor corporations, the government shifts income from larger profitable corporations to smaller and more risky businesses. This is achieved through the use of a flat tax system and tax deductions. For example, the government permits a small business deduction for small active business and a manufacturing and processing tax credit for manufacturing companies. The Department of Finance is essentially providing an incentive for taxpayers to invest in small business and manufacturing companies. Small businesses generally undergo notably greater risk in the early stages of corporate development, while larger holding companies incur substantially less risk. The main types of corporations for tax purposes are:

  •  Public corporations;
  •  Canadian-controlled private corporations; and
  •  Other private corporations (i/e., non-resident).

Public corporations and private holding corporations are subject to relatively higher tax rates than other corporations.