45 What is the General tax rate and the General rate reduction?

The General Rate Reduction (GRR) is an amount applied to the portion of the taxable income of a CCPC that is not impacted by the Small Business Deduction (SBD) or the Additional Refundable Tax (ART).  Effectively, the GRR is a mechanism the Canadian government can use to manipulate its overall corporate tax rate (by moving the GRR up or down periodically) without changing the basic rate (38%)

Here’s how it is allocated to income:  Let’s say that Wahaj Co. has $325,000 of taxable income.  If $175,000 of this amount is eligible for the SBD and $90,000 is hit with the ART then the remaining $60,000 would be considered Full Rate Taxable Income and would be eligible for the General Rate Reduction (GRR).

Note that as the M&P deduction rate (13%) is the same as the GRR (13%) we typically don’t worry about the M&P rate in this course as the tax payable amount would be the same under either method.

Interactive content (Author: David Ren, January 2020)

References: ITA 123.4(1) “General Rate Reduction Percentage”, 123.4(2)

January 2020