A Powerful Guide to Small Business Deduction: Episode 6 of Payroll Podcast

by | May 24, 2023

As you know, whether a firm is large or small, costs must be incurred. But did you realize that the CRA has also given small businesses many advantages? For example, the majority of companies must take time to develop. As a result, small firms have more expenses, making it challenging to manage their finances. As a result, the CRA created the Small Business Deduction for small enterprises. This will aid in expanding your company.

Yogi & Associates has described the advantages of the SBD and how to get this opportunity. In addition, we have clarified how you qualify for it in this blog. So why are we still waiting? Let’s start!

1. What is a Small Business Deduction?

A small business deduction is a way to lower your taxes. The Canadian government made this incentive available to help small business owners. With this incentive, businesses can be able to pay less income tax. In addition, it allows qualified Canadian-Controlled Private Corporations to enjoy a lower tax rate on the part of their operating profit. As a result, you can want SBD to build and expand your business.


For up to $500,000 in active company income, the SBD offers qualifying small firms a lower federal corporate tax rate of 9%. The standard national corporate tax rate is 15%.

2. Standard Tax Deductions for Small Businesses:

The CRA allows deduction of some things as tax deductions for eligible businesses. The list is as follows:

  • Promotions.
  • Cost of goods for the office.
  • Cost of rent for the office.
  • Cost of office products.
  • Employees’ salaries.
  • Costs of Accounting.
  • Fees for legal representation.
  • Charges for expertise.

3. Benefits of Small Business Deduction:

The benefits of Small Business Deduction are as follows:

Federal Tax Rate:

With an SBD incentive, you can apply a lower tax rate to income subject to a business limit. In this manner, you might use the money in your company for other purposes.

Financial Advantage:

You can boost your cash flow and invest more in your company’s growth with a lower tax rate. You can use the money to fund operational goals and advancements. This supports the expansion of your business.

Strategic Advantage:

You may help your company expand by taking advantage of the small business deduction. This may inspire you to compete with established businesses. As a result, you can increase your firm and elevate it to the level of large corporations.

4. How to Calculate the Small Business Deduction?

Choosing the correct tax rate and qualified income to compute the SBD would be best. You can calculate the SBD using the method shown below:

  1. First, you must calculate the eligible income from active business. You can do it by subtracting it from the ineligible income.
    2. The next step is to apply the small business deduction rate. After calculating the eligible income, use the SBD rate to calculate qualified payments. Finally, multiply the SBD rate by the eligible income calculated.
  2. The amount thus calculated is the small business deduction. It reduces the income tax and lowers your financial burden.

5. Eligibility of Small Business Deduction:

There is a specific criterion for small business owners to get the SBD incentive. The requirements include the following:

Canadian Controlled Private Corporation (CCPC):

Your business must be CCPC. In simple words, your business must be a private corporation. It must be resident in Canada, and only the residents of Canada should control it.

Only Active Business:

Only active enterprises with active income are eligible for the SBD. Therefore, this incentive is unavailable to companies with revenue from investments, real estate, etc.

Business Limit:

Businesses with a cap set by the CRA are eligible for the SBD. The business cap that year was set at $500,000. Annual changes affect this. Thus, check the eligibility requirements first before applying.

Foreign Exchange:

The SBD is available only to those businesses which do not offer shares for foreign exchange.

The Bottom Line:

You can profit from the decreased taxes with the Small Business Deduction. To receive this bonus, you must be eligible. The income tax rate on the income that qualifies for SBD is decreased from 15% to 9%. The money from the reduced tax can be used for other business-related expenses. Ensure accurate information on the reduced tax, as it varies over time following the most recent tax laws.

Yogi & Associates provided you with the details you required. After reading this blog article, you will comprehend the ideas and standards.


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