Questions And Answers - Federal Income Tax Rate Reduction for Small Business

1. What is the income tax rate for small business?
2. When will the reduction to the small business federal income tax rate announced in the 2007 Economic Statement take effect?
3. Will the reduction to the income tax rate for small business announced in the 2007 Economic Statement be reflected in the 2008 income tax returns and other CRA forms and publications?
4. Will tax preparation software developed by private companies reflect the tax changes announced in the 2007 Economic Statement?
5. Where can I find out more information about the 2007 Economic Statement?

Q.1 What is the income tax rate for small business?

A.1 The income tax rate for small business is the federal tax rate applicable on the first $400,000 of active business income of a qualifying Canadian-controlled private corporation. As announced in the 2007 Economic Statement, that rate will be reduced from 13.12% to 11%, effective January 1, 2008.

Q.2 When will the reduction to the small business federal income tax rate announced in the 2007 Economic Statement take effect?

A.2 The effective date for the reduction to income tax rate for small business, announced in the 2007 Economic Statement, is January 1, 2008.

The new rate will be prorated for taxation years that straddle the end of the calendar year. 

Q.3 Will the reduction to the income tax rate for small business announced in the 2007 Economic Statement be reflected in the 2008 income tax returns and other CRA forms and publications?

A.3 The CRA’s electronic and print forms and publications will be updated, as necessary, to reflect the reduction to the federal income tax rate for small business announced in the 2007 Economic Statement. 

Q.4 Will tax preparation software developed by private companies reflect the tax changes announced in the 2007 Economic Statement?

A.4 The CRA will work with tax preparation software developers in an effort to ensure that all the new measures announced in the 2007 Economic Statement are reflected in their products, as appropriate.

Q.5 Where can I find out more information about the 2007 Economic Statement?

A.5 For more information about the 2007 Economic Statement and the related bills, visit the Department of Finance Canada’s Web site at www.fin.gc.ca.