If you run an incorporated business in Newfoundland and Labrador, you could pay much less provincial tax than you might expect. The province offers a small business tax rate of 2.5% on eligible income, compared to the general corporate rate of 15%. Knowing how this tax rate works could save your business thousands of dollars each year.
This lower rate is called the small business tax rate. It is not a credit or refund. Instead, it means you pay a lower tax rate on certain income if your business meets the requirements.
The small business tax rate in Newfoundland and Labrador applies to active business income earned by eligible Canadian-controlled private corporations (CCPCs). The provincial government sets clear rules for who can qualify.
If your corporation earns more than $500,000 in active business income, only the amount over $500,000 is taxed at the higher 15% provincial rate.
Active business income is the money your company earns from its main business activities, like selling products or offering services. Income from investments or passive sources, and sometimes rental income, does not qualify for the small business tax rate.
The rules for active business income follow the federal government’s definition. This means your provincial and federal tax returns usually use the same numbers for this part.
To get the small business tax rate in Newfoundland and Labrador, your business must:
If your business is a sole proprietorship or partnership, you do not qualify. The small business tax rate only applies to corporations.
No, the small business tax rate is not a refundable credit or a grant. It is a lower tax rate applied to your qualifying income. You pay less provincial corporate tax right away, instead of getting money back later.
The Newfoundland and Labrador small business tax rate only affects your provincial corporate tax. You still need to pay federal corporate tax on the same income. If you qualify, you can also use the federal small business tax rate on your federal return.
Tools like GrantHub’s eligibility matcher can help you find other provincial and federal funding programs that may work with your tax savings.
Assuming all income qualifies
Only active business income is eligible. Investment or passive income is taxed at higher rates.
Ignoring the $500,000 limit
Income above $500,000 is taxed at the 15% provincial rate. This can affect your tax planning.
Believing unincorporated businesses qualify
Only incorporated businesses (corporations) can use the small business tax rate.
Thinking it is a refund or grant
The small business tax rate is not a cash payment. It simply lowers the amount of provincial corporate tax you owe.
Q: What is the small business tax rate in Newfoundland and Labrador?
It is a special provincial corporate tax rate of 2.5% on the first $500,000 of eligible active business income for qualifying small corporations.
Q: How much income qualifies for the 2.5% rate?
Up to $500,000 of active business income per year. Any income above that is taxed at the regular 15% rate.
Q: Do all incorporated businesses get the small business tax rate automatically?
No. Your company must be a CCPC and must earn active business income. Eligibility is checked when you file your corporate tax return.
Q: Is the small business tax rate available every year?
Yes. As long as your business meets the requirements, the rate applies each year.
Q: How does Newfoundland and Labrador’s small business tax rate compare to other provinces?
At 2.5%, it is one of the lowest small business tax rates in Canada. Other provinces have different rates and rules.
If your business is incorporated in Newfoundland and Labrador, make sure you check if you qualify for the small business tax rate. This can help you save on provincial taxes each year. GrantHub tracks hundreds of grants and tax programs across Canada, so you can see which ones fit your business and how they work with your provincial tax savings.
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