As an IT consultant or small business owner in Canada, staying current with tax changes can save you real money — and prevent compliance headaches. Several federal and provincial updates are now in effect, and they directly impact incorporated consultants (CCPCs).
This guide highlights the latest corporate tax changes, showing both what rules looked like before and what’s changed in 2025.
1. Small Business Deduction (SBD) – Business Limits Raised
The Small Business Deduction lets Canadian-controlled private corporations (CCPCs) pay the lower 9% federal rate on income up to a provincial “business limit.” Several provinces recently expanded this cap.
- Prince Edward Island (PEI)
- Before (pre–July 1, 2025): Business limit = CA$500,000
- Now (July 1, 2025 onward): Business limit = CA$600,000
(BDO Canada)
- Nova Scotia
- Before (pre–April 1, 2025): Business limit = CA$500,000
- Now (April 1, 2025 onward): Business limit = CA$700,000
(BDO Canada)
Impact: IT consultants with incorporated businesses in these provinces can now earn more income at the lower small-business tax rate before moving into the higher general corporate tax bracket.
2. Federal Corporate Tax Rates – Unchanged, but Still Key
- Before & After:
- Small Business Rate: 9% federal on income under the business limit
- General Corporate Rate: 15% federal (plus provincial)
(Government of Canada, TMF Group)
Impact: While federal rates didn’t shift, the bigger SBD business limits in some provinces mean more savings for incorporated IT consultants.
3. Deductible Expenses – Vehicle Limits Updated
The CRA allows deductions for reasonable business expenses, but some deduction ceilings recently changed.
- Automobile purchase (Class 10.1 passenger vehicles):
- Before (pre–2024): Deduction limit = CA$34,000 (before tax)
- Now (Jan 1, 2024 onward): Deduction limit = CA$37,000 (before tax)
- Leasing costs:
- Before (pre–2024): Monthly lease deduction cap = CA$900
- Now (Jan 1, 2024 onward): Monthly lease deduction cap = CA$1,050
(CRA – Small Business Updates)
Impact: If you use a vehicle to visit clients or conferences, you can now deduct more for both purchased and leased cars. IT consultants often drive to client sites, so this matters.
4. Reporting and Compliance – Stricter Oversight
The CRA continues to tighten compliance rules around small business reporting.
- Before: Penalties for unreported income existed but were less emphasized.
- Now: CRA explicitly warns small businesses: omitting business income can trigger a 10% penalty.
(CRA – Self-Employed Income Rules)
Impact: IT consultants need meticulous record-keeping, especially for mixed personal/business expenses (e.g., internet, phones, home office).
5. Scientific Research & Experimental Development (SR&ED) – Expanded Access
- Before: SR&ED credits were available but with restricted refundability and limited treatment of capital expenditures.
- Now (2025 federal update): Refundability extended to more corporations (including Canadian public corporations), and capital expenditures are again eligible.
(PwC Tax Summaries)
Impact: For IT consultants doing custom software development or R&D projects, this expansion means greater access to refundable credits.
6. Digital Services Tax (DST) – Repealed
- Before: Canada had introduced a 3% Digital Services Tax on revenues from Canadian users (targeting large firms).
- Now (2025): The DST was rescinded following trade pressures; payments will be refunded under draft legislation.
(AP News)
Impact: While this mostly affects big tech, consultants subcontracting with large platforms may see indirect benefits (lower pass-through costs, fewer client uncertainties).
Quick Takeaways for IT Consultants
- Bigger SBD limits mean more income is taxed at the lower rate in PEI and Nova Scotia.
- Vehicle deduction caps increased — more write-offs for cars and leases.
- CRA penalties tightened — keep pristine records and receipts.
- SR&ED credits improved — software and R&D projects get stronger support.
- DST repealed — reduced risk of indirect costs for those working with digital giants.
Still Unsure?
Navigating the complex world of corporate taxes can be challenging, particularly for the independent contractors who must consider both their personal and business finances. This is where we have got you covered! Over the past three decades, we have been helping small business owners organize finances, create wealth, and transform wealth into a legacy. Our seasoned experts can help you develop a comprehensive tax plan that aligns with your wealth maximization goals. Book a FREE consultation today with one of our experts and discuss this further.
