New Brunswick: Changes to Corporate Tax and Financial Corporation Capital Tax

Business Income, Provincial Taxes

New Brunswick: Changes to Corporate Tax and Financial Corporation Capital Tax

As of April 1, 2016, New Brunswick increased its general corporate income tax rate from 12 percent to 14 percent. The province also raised its financial corporate capital tax rate from 4 percent to 5 percent. The lower income tax rate for small corporations dropped from 4 percent to 3.5 percent, but the $500,000 business limit remained the same.

General Corporate Income Tax Rates in New Brunswick

As of April 2016, the general income tax rate on corporate profits in New Brunswick is 14 percent; corporations pay $140,000 in provincial income tax for every $1 million in taxable profits. Before the increase, corporations faced a 12 percent provincial rate, the equivalent of $120,000 for every $1 million of taxable income.

General Corporate Income Tax Rates in Canada

Corporations also have to pay federal income tax, and Canada assesses a general corporate income tax of 38 percent. However, the Canada Revenue Agency also offers a 10 percent federal tax abatement and a 13 percent general income tax rebate, lowering the federal corporate income tax rate to 15 percent.

If a New Brunswick corporation earns $1 million in a tax year, it pays $140,000 in provincial income tax and $150,000 in federal income tax – an effective corporate income tax rate of 29 percent.

Lower Corporate Income Tax Rates in New Brunswick

Like most provinces, New Brunswick levies a lower corporate income tax on businesses that qualify for the federal small business deduction. As of April 2016, the lower rate is decreasing from 4 percent to 3.5 percent. With the 3.5 percent rate, a corporation with $100,000 in taxable income pays just $3,500 in income tax. When the rate was 4 percent, corporations paid $4,000 in income tax on the same amount of taxable income.

The Federal Small Business Deduction

To qualify for the federal small business deduction, corporations must have less than $15 million of taxable capital employed in Canada. Businesses that have less than $500,000 in taxable income fall under the business limit; as of 2016, they may claim a deduction worth 17.5 percent of their taxable income. When combined with the federal tax abatement of 10 percent, this effectively lowers the federal corporate income tax rate from 38 percent to 10.5 percent.

As of 2016, small businesses in New Brunswick pay 14 percent on corporate profits. This is the 10.5 percent federal tax rate plus the 3.5 percent lower provincial rate. For instance, on $100,000 of profits, a corporation pays a total of $14,000 in federal and provincial income tax.
The percentage associated with the small business deduction is scheduled to increase by half a percentage point annually until 2019. Then, the deduction will be worth 19 percent of taxable income, and small businesses will only face a 9 percent corporate tax rate. If the lower corporate income tax rate stays the same in New Brunswick, small corporations will pay a total 12.5 percent corporate income tax as of 2019.

The Business Limit

As indicated above, the business limit refers to the maximum amount of profits taxed at the lower corporate rate. The CRA uses a $500,000 business limit; as of 2016, New Brunswick also uses the same limit. Some provinces set their own limits.

If your corporation’s taxable income is above the limit but you are still below the threshold of $15 million in taxable capital, you will face the lower corporate rate on some of your taxable income, but you will face the higher rate on the remaining portion of your income.

Financial Corporation Capital Tax

New Brunswick also announced an increase to its financial corporation capital tax rate. Designed for financial institutions in particular, the FCCT is assessed on taxable capital over $10 million. As of April 1, 2016, the rate jumped from 4 percent to 5 percent. Essentially, taxable capital consists of shareholder equity, surpluses, reserves, loans and advances minus certain types of investments.
For example, if a bank has $15 million in taxable capital, its capital is $5 million past the threshold. As a result, the $5 million is subject to a 5 percent FCCT. On $5 million, that tax equates to $250,000. This tax is levied in addition to corporate income taxes.

Mid-Year Tax Changes

Unless your corporation’s fiscal year runs from April 1 to March 31, you will need to apply at least two tax rates when filling out your tax return. If your corporation uses a calendar year as its fiscal year, when filing your 2016 tax return, you need to apply the 14 percent provincial income tax rate to all profits earned after April 1, 2016. However, you may apply the 14 percent rate to taxable profits earned from Jan 1, 2016 to March 31, 2016. Treat the other changes similarly in terms of the date.