Business owners · Check 2

Is your corporate surplus losing ground every year?

Investment income inside a corporation is taxed at about 50% in Ontario. Once it passes $50,000 a year, it may also shrink your small business deduction. This illustrative check compares that with tax-deferred growth.

Conservative illustration: all returns are treated as interest, taxed in full each year. Capital gains and Canadian dividends are generally taxed less inside a corporation, so your actual cost may be lower. Illustrative comparison only. The tax-deferred column uses a growth rate you choose. It does not show any specific product or company, and it is not a projection. Tax-deferred options have their own costs, rules and qualification, depending on your situation.

Surplus you would investRetained earnings not needed in the business.Years to compare

Investment return inside the corporation (% a year)Conservative: treated as interest, fully taxable each year.Assumed tax-deferred growth rate (% a year)Your assumption, after costs. Not a forecast.

Active business income each yearProfit taxed at the small business rate today.Other investment income already in the corporationAny associated companies count too.

Edit tax assumptions

Tax on corporate investment income (%)Small business rate (%)Estimated 2026 rate per TaxTips.ca; confirm with your accountant.

General corporate rate (%)

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Rates and sources (2026)

Ontario CCPC rate on investment income, 2026: 50.17% (38.67% federal plus 11.5% Ontario). Of this, 30.67% of the income is added to refundable dividend tax on hand and may be refunded when taxable dividends are paid. Sources: TaxTips.ca, 2026 Corporate Income Tax Rates; EY, Corporate investment income tax rates 2026.
Ontario active business income rates, 2026: general 26.5% (15% federal plus 11.5% Ontario). Small business rate 11.2% (9% federal plus 2.2% Ontario), an estimated 2026 rate per TaxTips.ca, which reports Ontario's 2026 Budget cutting the Ontario small business rate from 3.2% to 2.2% effective July 1, 2026 (12.2% before that date). Confirm with your accountant. Source: TaxTips.ca, 2026 Corporate Income Tax Rates.
Small business deduction grind: the $500,000 business limit is generally reduced by $5 for every $1 of adjusted aggregate investment income (AAII) over $50,000 in the prior year, and is nil at $150,000. Sources: CRA, Small business deduction rules; CRA, T2 Guide line 426.

How it works: each year the return is taxed at the investment rate and the rest is reinvested. The prior year's investment income reduces the business limit by $5 for every $1 over $50,000, and the lost limit is taxed at the general rate instead of the small business rate. Capital gains and Canadian dividends are taxed differently, refundable tax may come back when taxable dividends are paid, and personal tax applies when money leaves the corporation in either case. Talk with your accountant about your own mix.

Rates checked November 3, 2026. You can change every rate above in the form.

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