Small Business Deduction Calculator Canada
This small business deduction calculator finds the federal limit left after the passive income and taxable capital grinds, which one binds and any unused limit.
What it does
The small business deduction calculator takes the federal business limit apart. It shows how much of the limit this corporation is allocated out of its associated group, how much each of the two grinds would remove, which of the two actually binds, how much active income the surviving limit can shelter, and how much limit is left unused.
Data sources & parameters
The figures below drive this calculator. We keep them aligned with the latest official guidance, and each result recalculates automatically whenever a value changes.
| Parameter | Value | Source | Last updated |
|---|---|---|---|
| Federal small-business (SBD) corporate income tax rate (9% on active income up to the business limit) | 0.09 | canada.ca | Effective 2026-01-01Federal small-business (SBD) corporate income tax rate (9% on active income up to the business limit) |
| Federal general corporate income tax rate (15% net, after the 10% abatement and 13% rate reduction) | 0.15 | canada.ca | Effective 2026-01-01Federal general corporate income tax rate (15% net, after the 10% abatement and 13% rate reduction) |
| Federal small-business deduction annual business limit | 500,000 | canada.ca | Effective 2026-01-01Updated dead Canada.ca CRA URL to verified 200 OK official publication |
| Adjusted Aggregate Investment Income at which the passive-income grind of the SBD limit begins | 50,000 | canada.ca | Effective 2026-01-01Updated dead Canada.ca CRA URL to verified 200 OK official publication |
| AAII at which the SBD business limit is fully ground to nil by passive income | 150,000 | canada.ca | Effective 2026-01-01Updated dead Canada.ca CRA URL to verified 200 OK official publication |
| SBD business-limit reduction per dollar of AAII over the $50,000 threshold ($5 of limit lost per $1 of passive income) | 5 | canada.ca | Effective 2026-01-01Updated dead Canada.ca CRA URL to verified 200 OK official publication |
| Taxable-capital-employed-in-Canada at which the SBD business limit begins to grind | 10,000,000 | canada.ca | Effective 2026-01-01Updated dead Canada.ca CRA URL to verified 200 OK official publication |
| Taxable-capital at which the SBD business limit is fully ground to nil (extended from $15M to $50M) | 50,000,000 | canada.ca | Effective 2026-01-01Updated dead Canada.ca CRA URL to verified 200 OK official publication |
We always strive to use the latest data for every variable so our results and reports are as accurate as possible. Even so, errors are possible — you should not rely on this tool or its report alone, and we accept no liability for any decision made based on it.
The formula
Business limit = allocated limit − max(passive-income grind, taxable-capital grind), where the passive grind = (AAII − lower threshold) × dollars lost per dollar and the capital grind = allocated limit × (taxable capital − low) ÷ (high − low)
How it works
The allocated limit is the federal business limit multiplied by this corporation's share. The passive-income grind removes a fixed number of dollars of limit for every dollar of the group's adjusted aggregate investment income above the lower threshold; the taxable-capital grind removes a straight-line share of the limit between the low and high taxable capital thresholds. The larger of the two is applied — never the sum — and what survives is the limit that prices active income at the small-business rate.
Where it is used
- Finding out which of the two grinds is actually costing you limit
- Checking how much passive income or taxable capital is left before the limit starts to fall
- Allocating one business limit across an associated group on Schedule 23
- Spotting a province that has not paralleled the federal passive-income grind
Worked example
A single corporation with CA$450,000.00 of active business income starts from an allocated limit of …. Its CA$60,000.00 of adjusted aggregate investment income costs … of limit, while CA$12,000,000.00 of taxable capital costs … — and because only the larger applies, the reduction actually taken is …, leaving a business limit of …. That shelters … of active income at the small-business rate with … of limit unused, worth … in federal tax against the general rate. The grind itself costs … of federal tax, and the corporation is … of further passive income away from losing the limit entirely.
What the small business deduction calculator does
How much business limit does this corporation actually have, and what happened to the rest? The calculator starts from the federal business limit, applies this corporation’s share of the associated group’s limit, works out both grinds separately, applies the larger, and reports the remaining limit and how much active income it shelters. It measures the limit rather than the full tax bill, which the CCPC corporate tax calculator covers.
A worked example
A corporation with $450,000 of active income has the full $500,000 limit. Its group earned $60,000 of adjusted aggregate investment income last year, $10,000 over the $50,000 threshold, which removes $50,000 of limit. Group taxable capital of $12 million, $2 million into the $10 million to $50 million phase-out, would remove $25,000. Only the larger applies, so the limit is $450,000, exactly enough to shelter all its active income. The federal saving from the deduction is $27,000, the 6-point gap between the 15% general and 9% small business rates on $450,000, and the grind costs $3,000 of it. Another $90,000 of investment income would wipe out the limit entirely.
How the business limit is reduced
The passive income grind removes a fixed amount of limit for every dollar of the group’s prior-year adjusted aggregate investment income above a lower threshold, reaching nil at an upper threshold. The band is narrow, so a corporation inside it loses limit quickly.
The taxable capital grind reduces the limit in a straight line as the group’s taxable capital employed in Canada rises between a low and a high threshold. The high threshold was raised substantially in recent years, spreading the phase-out over a much wider range: gentler per dollar but reaching many more corporations.
Only the larger reduction is taken. Adding them gives a limit that is too small and a tax estimate that is too high.
Whose figures go in
Both tests use the associated group’s figures. A holding company that owns the portfolio and an operating company that earns the active income are associated, so the holdco’s investment income grinds the opco’s limit. Any structure where retained profits have moved into a sister company has to be tested as a whole.
Investment income is tested on the prior year, so a large realized gain shows up in the next year’s limit. That lag is what makes the headroom figures useful for planning.
Allocating one limit across a group
Associated corporations share one business limit and choose how to divide it on Schedule 23. Enter this corporation’s percentage and the calculator applies it to the limit and the grinds, and shows what an even split would give. Where one company earns most of the active income, an even split wastes limit, which the unused limit line shows.
When the provincial limit does not follow
Ontario and New Brunswick did not adopt the federal passive income grind, though both follow the taxable capital grind. Clear the checkbox and the provincial limit separates from the federal one, showing only the capital grind. The gap is real money: part of the active income is then taxed at the federal general rate and the provincial small business rate at once, which a single blended rate gets wrong.
Reading the headroom lines
The results show how much more investment income the group can earn before the grind starts, how much more before the limit reaches nil, and how much taxable capital is left before that grind starts. A small first figure means a realized gain, rent increase or maturing bond could push the group into the grind next year. A small second figure means the limit is nearly gone, so further investment income costs comparatively little more, which changes whether holding investments in the corporation makes sense.
Tax figures are federal only, so they compare across provinces; add your provincial spread, or use the CCPC corporate tax calculator, for the combined number.
Assumptions and limits
The calculator assumes a Canadian-controlled private corporation with a full twelve-month year, genuinely active business income, and grinds tested on the group figures you supply. It does not model specified investment business income, specified corporate income rules, personal services business income, partnership allocations, short taxation years, refundable taxes on investment income or provincial corporate rates. The business limit, thresholds, reduction rate and federal corporate rates are maintained parameters.
This is an estimate for planning, not a tax calculation or financial advice. Confirm the position with the CRA or your accountant before filing or acting on it.
About This Tool: Small Business Deduction
Small business deduction: use this tool to get an instant, accurate estimate. The figures follow official CRA guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.
Tax year 2026
Frequently asked questions
What is the small business deduction?
Are the two grinds added together?
Whose passive income and taxable capital do I enter?
How is the limit split across an associated group?
Why can the provincial limit be larger than the federal one?
How does this differ from the other two corporate tools here?
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