Does corporate taxation differ in the different provinces of Canada? Do we need to explore this? The answer is “you should,” particularly if you are incorporated in Quebec. Corporate taxation in Quebec is different from the rest of the provinces in Canada.
Usually, when you think of incorporating your business, you look for incorporating in the province you live. Can you incorporate it in another province? Yes, you can. This article will be more interesting for Quebec residents, particularly those in the e-commerce business. We understand that you can operate your e-commerce business from anywhere. But we are not discussing here the requirements of incorporating in the different provinces of Canada. Maybe we can cover this topic in another blog.
This article mainly focuses on the corporate taxation process, rates in Quebec, and a few comparisons with the Province of Ontario to help you understand which one is better and why.
Tax administration and filing
You must file CO-17 (Quebec Corporate Income Tax Return) a separate income tax return with Quebec Revenue Authority if your business is incorporated in Quebec and pay taxes to the Quebec Revenue Agency’s.
You only file the T2 (Federal Corporate Income Tax Return) and some Ontario provincial tax schedules with CRA in Ontario. You pay the federal and provincial taxes owing to CRA.
Provincial corporate tax rate
Quebec’s general corporate income tax rate is 11.5%, the same as Ontario’s general corporate income tax rate. Both Quebec and Ontario allow a small business deduction to reduce the general income tax rate for small businesses.
For tax year-end on or before March 25, 2021, but after December 31, 2020, the small business deduction rate was 7.5% in Quebec. So, during this period, the effective corporate income tax rate was 4% in Quebec. Ontario small business deduction rate has been steady at 8.3% since January 01, 2020. In Ontario, the effective corporate income tax rate is 3.2%.
Quebec increases the small business deduction rate for a qualifying corporation from 7.5% to 8.3% for tax year-end after March 25, 2021. After this increase, the effective corporate income tax rate is identical in Quebec and Ontario.
Small business deduction
In Quebec, your corporation will qualify for small business deduction when it satisfies the following conditions:
Further explanations on the above conditions
One of the significant conditions to get the small business deductions in Quebec is the number of hours worked by the employees.
Let’s discuss a little more about the “number of hours worked by the employees” as required for small business deduction in Quebec.
In March 2017 budget (or as they like to call it, “Quebec economic plan”), Revenue Quebec decided to add this condition “number of hours worked by the employees” to qualify for a small business deduction. Initially, Revenue Quebec wanted the businesses to have at least three full-time employees eligible for the small business deduction. But later, they realized that many companies have part-time employees. Hence, they changed the requirement to a minimum number of hours worked to 5,500 hours per year.
What is the number of hours worked by the employees?
RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters. RKB a CPA(Delaware), CA(India), and CIA(USA) has over 25 years of experience in accounting and taxation in dealing with various countries in the world.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.