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Corporate income tax in Québec in 2026: which rate applies to your business?

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This article is for owners of incorporated small and medium-sized businesses in Québec and for self-employed individuals considering incorporation. It sets out the three corporate tax rates for 2026, Québec’s eligibility test for the reduced rate and the rate cut announced on April 29, 2026.

Three key points

  • Three rates. In 2026, a corporation pays 12.2%, 26.5% or 50.17% in combined federal and Québec tax, depending on its income.
  • A Québec test. In Québec, the reduced rate requires at least 5,500 paid hours in the year. At 5,000 hours or fewer, the corporation pays 20.5% on its first $500,000.
  • An announced cut. Québec announced a reduced rate of 11.2% for taxation years that begin after April 29, 2026. No enacted law implements it.

The three combined rates for 2026

Income Federal Québec Total
Business income, first $500,000 9% 3.2% 12.2%
Business income above that, or without the reduced rate 15% 11.5% 26.5%
Investment income 38.67% 11.5% 50.17%

Taxation year from January to December 2026.

The small business rate: 12.2%

It results from the small business deduction (SBD), at both the federal and the Québec level. It applies to a Canadian-controlled private corporation (CCPC) on its first $500,000 of income from the sale of its products or services. Associated corporations, controlled by the same persons, share this business limit.

The general rate: 26.5%

It applies to business income above $500,000 and to all business income of a corporation that does not qualify for the reduced rate.

Investment income: 50.17%

Interest, rents and the taxable half of capital gains are taxed at 50.17%. Part of this tax is refundable, at the federal level only:

  • 30 2/3% of investment income is added to an account called refundable dividend tax on hand (RDTOH);
  • when the corporation pays taxable dividends, it receives a dividend refund of 38 1/3% of those dividends, up to the RDTOH balance;
  • after the refund, the corporation’s tax on this income comes down to 19.5%. The shareholder then pays personal tax on the dividend.

The 5,500 paid-hours test

In Québec, the SBD requires the corporation to have paid at least 5,500 hours of work in the year.

  • Each person counts for no more than 40 hours a week, or 2,080 hours a year.
  • Hours worked in the business by a shareholder who holds the majority of the voting shares count, even without a salary.
  • Between 5,000 and 5,500 hours, the Québec SBD is reduced on a straight-line basis. It is nil at 5,000 hours or fewer.
  • Corporations in the primary and manufacturing sectors meet a separate test, based on the share of their activities in those sectors.

The self-employed owner incorporated alone

An owner who works alone in the corporation counts for no more than 2,080 hours, below the 5,000-hour threshold. The corporation keeps the 9% federal rate and pays Québec’s general rate of 11.5%, for a combined 20.5% on its first $500,000.

The announced SBD increase

Québec announced the measure on April 29, 2026. Revenu Québec covered it in a tax news item on May 4, 2026.

  • The rate. Québec tax on the first $500,000 of eligible income would go from 3.2% to 2.2%. The combined rate would go from 12.2% to 11.2%.
  • The timing. It applies to taxation years that begin after April 29, 2026, with no rate split for the year under way on that date. For a year ending December 31, the first year affected would be 2027.
  • The value. One percentage point on $500,000, or up to $5,000 a year.
  • What stays the same. The $500,000 business limit, the hours test and the other conditions.

As of October 15, 2026, the measure remains announced. Bill 6, introduced on May 12, 2026 to implement it, was not passed before the National Assembly was dissolved. Its outcome depends on the government formed after the October 5, 2026 election.

The same announcement would reduce Québec’s dividend tax credit for non-eligible dividends, generally those paid out of income taxed at the reduced rate: from 3.42% to 2.69% of the grossed-up dividend, for dividends received after December 31, 2026. Shareholders would pay slightly more tax on these dividends. This point will be covered in a future post.

Fictional example

A Montréal service business, with a taxation year from January 1 to December 31, 2026, pays 6,200 hours in the year. Its business income is $600,000; it also earns $20,000 in interest.

Income Amount Rate Tax
Business income, first $500,000 $500,000 12.2% $61,000
Business income above that $100,000 26.5% $26,500
Interest $20,000 50.17% $10,034
Total $620,000 $97,534

The interest adds $6,133 to the RDTOH ($20,000 × 30 2/3%). A taxable dividend of $16,000 recovers it ($16,000 × 38 1/3% = $6,133). Net tax on the interest falls to $3,901.

Two variations:

  • 4,800 paid hours. The corporation does not qualify for the Québec SBD. Its first $500,000 is taxed at 20.5%, or $102,500. The difference is $41,500.
  • Increase implemented as announced. In 2027, the first $500,000 would be taxed at 11.2%, or $56,000. The difference is $5,000.

What it means for you

  • In Québec, the number of hours paid in the year determines access to the reduced rate. At 5,000 hours or fewer, the gap reaches 8.3 percentage points on the first $500,000.
  • Investment income is taxed at 50.17%. The 30 2/3-point refund is obtained when taxable dividends are paid.
  • The cut to 11.2%, if implemented, would apply to most corporations from their 2027 taxation year.

General information; this is not tax advice.

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