Understanding Business Tax in Nova Scotia
I came across some interesting data today on Taxtips.ca. I found a list of business income tax rates for each province in Canada for 2024.
Looking at the data… it got me thinking.
Why don’t I compare the total tax of a business making 1 million annually has to pay and the total tax you have to pay if your personal income was 1 million annually.
Business Tax on 1 MILLION in Nova Scotia
To calculate the tax for a business making $1 million in Nova Scotia, you need to consider both the federal and provincial corporate tax rates, distinguishing between the first $500,000 (eligible for the small business rate) and the remaining $500,000 (subject to the general corporate rate).
Special Provisions and Changes
- Small Business Deduction (SBD): Available to CCPCs, phased out when taxable capital reaches $10 million and eliminated at $15 million. This phase-out also applies in some provinces.
- Investment Income Impact: The federal 2018 budget introduced changes to reduce the business limit based on the investment income of a CCPC.
- Nova Scotia: Provides a corporate tax holiday for new small businesses for the first three years.
- Saskatchewan: Delayed the increase in the small business tax rate to 2% until June 30, 2025.
- Newfoundland & Labrador: Reduced the small business tax rate from 3% to 2.5% in the 2024 budget.
Federal Tax Rates
- Small Business Rate: 9% on the first $500,000.
- General Rate: 15% on income over $500,000.
Nova Scotia Provincial Tax Rates
- Small Business Rate: 2.5% on the first $500,000.
- General Rate: 14% on income over $500,000.
Tax Calculation
- First $500,000:
- Federal tax: 500,000×9%=45,000500,000×9%=45,000
- Nova Scotia tax: 500,000×2.5%=12,500
- Total tax on first $500,000: 45,000+12,500=57,500
- Next $500,000:
- Federal tax: 500,000 × 15%= 75,000
- Nova Scotia tax: 500,000×14%=70,000
- Total tax on next $500,000: 75,000+70,000=145,000
| Income Range | Federal Tax | Nova Scotia Tax | Total Tax |
| First 500,000 | 45,000 | 12,500 | 57,500 |
| Next 500,000 | 75,000 | 70,000 | 145,000 |
| Total tax for $1 million | 202,500 |
Total Tax
- Total tax for $1 million: 57,500+145,000=202,50057,500+145,000=202,500
Therefore, a business making $1 million in Nova Scotia would have to pay a total of $202,500 in corporate taxes for the year 2024.
Now let’s see how much tax you would have to pay if your earned an income of $1 million in Nova Scotia
Income Tax on 1 MILLION in Nova Scotia
If you are earning an income of $1 million in Nova Scotia, the tax calculation involves both federal and provincial personal income tax rates. Here are the steps to calculate the total tax:
Federal Tax Rates (2024)
- 15% on income up to $53,359
- 20.5% on income over $53,359 up to $106,717
- 26% on income over $106,717 up to $165,430
- 29% on income over $165,430 up to $235,675
- 33% on income over $235,675
Nova Scotia Tax Rates (2024)
- 8.79% on income up to $29,590
- 14.95% on income over $29,590 up to $59,180
- 16.67% on income over $59,180 up to $93,000
- 17.5% on income over $93,000 up to $150,000
- 21% on income over $150,000
Tax Calculation
Federal Tax
- First $53,359: $53,359×15%=$8,003.85
- Next $53,358 (from $53,359 to $106,717): $53,358×20.5%=$10,938.39
- Next $58,713 (from $106,717 to $165,430): $58,713×26%=$15,765.38
- Next $70,245 (from $165,430 to $235,675): $70,245×29%=$20,371.05
- Remaining $764,325 (from $235,675 to $1,000,000): $764,325×33%=$252,227.25
Total Federal Tax: $8,003.85+$10,938.39+$15,765.38+$20,371.05+$252,227.25=$307,305.92
Nova Scotia Tax
- First $29,590: $29,590×8.79%=$2,600.06
- Next $29,590 (from $29,590 to $59,180): $29,590×14.95%=$4,423.71
- Next $33,820 (from $59,180 to $93,000): $33,820×16.67%=$5,638.69
- Next $57,000 (from $93,000 to $150,000): $57,000×17.5%=$9,975.00
- Remaining $850,000 (from $150,000 to $1,000,000): $850,000×21%=$178,500.00
Total Nova Scotia Tax: $2,600.06+$4,423.71+$5,638.69+$9,975.00+$178,500.00=$201,137.46
Total Tax
- Federal Tax: $307,305.92
- Nova Scotia Tax: $201,137.46
Total Tax Payable: $307,305.92+$201,137.46=$508,443.38$307,305.92+$201,137.46=$508,443.38
Therefore, if you are earning an income of $1 million in Nova Scotia, you would have to pay approximately $508,443.38 in total taxes for the year 2024.
WHATTT!!! 1.65 TIMES
You are paying 1.65x times more tax in your personal income than your business income for the same $1 million earned.
Income Tax Calculator for Nova Scotia
I made you a calculator just for fun. Might as well.
Go ahead. Play around with it.
Nova Scotia Tax Calculator
What is the significance of the federal business limit of $500,000 for small businesses?
The federal business limit of $500,000 for small businesses in Canada holds significant importance for several reasons:
The Canadian Small Business Deduction: A Tax-Saving Opportunity
Understanding the Basics
Ever wondered how small businesses in Canada catch a tax break? Well, let me tell you about the small business deduction (SBD). It’s a game-changer for Canadian-controlled private corporations (CCPCs), offering a reduced federal tax rate of 9% on active business income up to $500,000.
That’s a whopping 6% less than the general rate! Imagine saving up to $30,000 annually in federal taxes if you keep those profits in your corporation. Now that’s something to smile about!
Limitations and Phase-Outs
The Taxable Capital Threshold
But hold on, there’s a catch. This sweet deal starts to fade when a CCPC’s taxable capital in Canada exceeds $10 million. By the time you hit $15 million, it’s gone completely.
The Passive Income Factor
Now, let’s talk passive income. If your CCPC earns more than $50,000 from passive investments, your business limit starts shrinking. And if you reach $150,000 in passive income? Say goodbye to that small business rate entirely.
Associated Corporations
Oh, and if you’re thinking of splitting your income across multiple corporations to multiply the SBD, think again. The $500,000 limit is shared among associated corporations under common control.
Recent Legislative Changes
Here’s some good news, though. Recent changes have bumped up the upper limit of taxable capital from $15 million to $50 million. This means more CCPCs can now qualify for the SBD, starting from tax years after April 6, 2022.
So, there you have it – the ins and outs of the Tax in Nova Scotia. It’s a bit of a maze, but navigating it right could mean big savings for your small business!
