Business Plan Assumptions for Canadian Corporate Tax

Q: What inputs should I enter in the Startup Financial Model for my corporate tax assumptions for a Canadian startup business to make sure my financial statements are correct?

To answer your question generally, our app allows users to enter corporate income tax assumptions as follows:

  • We have a selection for U.S. C Corporations that applies a built-in U.S, corporate tax table as U.S. C Corporation tax is a fairly complicated set of tax assumptions and rates

  • We have a selection for a flat tax as most countries in the world have a flat corporate tax rate. If the flax tax assumption is selection, then another input opens up that asks for the appropriate flat tax amount to be applied

  • We also have a selection for a pass-through entity, such as an LLC, S Corporation, sole proprietorship, non-profit, or other other entity type that is not taxable at the company level.

To answer your question specifically, if you are a sole proprietorship in Canada, then you should choose Pass-Through Entity for your Income Statement Assumptions - 5. Income Tax Liability assumption since your business income will flow to you and you will pay personal taxes.

On the other hand, if you are a Canadian corporation, then you should choose Flat Corporate Rate since Canada has a flat corporate tax rate.

Then, under Income Statement Assumptions - 6 Appropriate Flat Tax Rate, you should enter the tax rate that is a combination of both for Canada and for your province.

 Canadian Corporate Tax Inputs.png

For example, if your business is domiciled in Manitoba, your entry should be as follows:

Net Federal Canadian Corporate Tax Rate (after Provincial abatement and general rate reduction): 15%

+ Manitoba Provincial Corporate Tax Rate: 12%

= Total Corporate Tax Rate: 27%

Here is the Canadian Corporate Tax rate info from the Canada Revenue Agency and here is a nice simple explanation from PWC.

Be sure to seek competent tax advice for any critical tax decisions.