This bill amends the Taxation Act, 2007 to increase the Ontario small business deduction (SBD) rate and to raise the business limit used to determine the portion of active business income eligible for the SBD. The bill replaces the existing 8.3% phased rule with a 9.9% rate for days after December 31, 2023, and raises the business limit from $500,000 to $600,000.
It also updates the surtax calculation formula to use the new $600,000 threshold.
Because the amendments are deemed to have come into force on January 1, 2024, corporations and tax practitioners will need to address returns and computations for taxation years that include 2024. The change increases after‑tax income for eligible Ontario private corporations but reduces provincial tax revenue and creates practical issues around prorating, reassessments and interactions with existing federal and provincial small‑business rules.
At a Glance
What It Does
The bill amends subsections of the Taxation Act, 2007 to (1) apply a 9.9% Ontario small business deduction rate for days after December 31, 2023 and retain 8.3% for earlier days within a split taxation year, (2) increase the business limit used to calculate the SBD from $500,000 to $600,000, and (3) substitute $600,000 for $500,000 throughout the surtax formula in clause 32(1)(b).
Who It Affects
Ontario resident private corporations and Canadian-controlled private corporations that claim the Ontario small business deduction; tax directors, accountants and payroll/tax software vendors who prepare corporate tax returns; and the Ontario Ministry of Finance and tax administration staff charged with implementing the changes and processing any reassessments.
Why It Matters
By lifting the rate and expanding the business limit, the bill increases tax relief concentrated at the lower end of corporate taxable income, shifting disposable cash to eligible firms and altering marginal effective tax calculations. The retroactive effective date and the prorating rules require administrative guidance and may prompt amended returns or reassessments for tax years that span the change.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
The bill makes three tightly focused changes to Ontario’s small business taxation rules. First, it changes how the SBD rate is applied for taxation years that straddle the policy shift: for the portion of a taxation year after December 31, 2023 the SBD rate is 9.9 percent, while days before that date remain governed by the earlier 8.3 percent rule.
That produces a day‑count prorated SBD rate for fiscal years that cross the boundary, rather than a single uniform rate for the year.
Second, it raises the business limit—the dollar cap on active business income eligible for the SBD—from $500,000 to $600,000. The bill updates the relevant subsections that reference the $500,000 threshold so that computations of the deduction and the related phase-in/phase-out mechanics now use $600,000.Third, it amends the surtax calculation in clause 32(1)(b) by replacing every occurrence of $500,000 with $600,000.
That change aligns the surtax computation with the new business limit so that surtax additions tied to the business limit reflect the higher threshold. Taken together, the changes reduce the provincial tax payable by eligible small corporations on the first segment of active business income and adjust the surtax arithmetic accordingly.Because the bill is deemed retroactive to January 1, 2024, corporations with fiscal years overlapping that date will need to determine whether to file amendments or expect reassessments.
Tax software, return schedules and Ministry guidance will need updating to implement the prorating rule and the new threshold across all affected calculations.
The Five Things You Need to Know
The bill increases the Ontario small business deduction rate component from 8.3% to 9.9% for the portion of a taxation year after December 31, 2023; taxation years spanning that date are prorated by days.
It raises the business limit used to calculate the small business deduction and related phase‑out mechanics from $500,000 to $600,000 by amending subsections 31(5) and 31(5.1)(a).
Clause 32(1)(b)’s surtax formula is amended by substituting $600,000 wherever $500,000 appears, changing how surtax additions tied to the business limit are computed.
The amendments are expressly deemed to have come into force on January 1, 2024, making the changes retroactive for taxation years that include that date.
The bill’s prorating mechanism uses the ratio of days in the taxation year after Dec 31, 2023 to total days to allocate between the old and new SBD rates for split years.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Prorated transition from 8.3% to 9.9% SBD rate
This provision replaces the existing clause structure in subsection 31(4) to create two parallel rate components: an 8.3% component that applies to days after Dec 31, 2019 and before Jan 1, 2024, and a 9.9% component that applies to days after Dec 31, 2023. Practically, a corporation with a fiscal year that crosses Jan 1, 2024 will calculate a weighted SBD rate by multiplying each rate by the ratio of days in the taxation year that fall into the relevant period. The result is a single blended percentage for the taxation year rather than picking one fixed rate for the entire year.
Business limit raised to $600,000 in SBD calculations
These amendments substitute $600,000 for the prior $500,000 figure in the specific subsections that set the business limit. That change increases the dollar amount of active business income eligible for the Ontario reduction and alters any downstream computations (for example, phase‑outs tied to the business limit) that reference those subsections. Tax preparers must ensure all schedules and worksheets that use the business limit are updated to the new threshold.
Surtax formula updated to reflect new business limit
Section 2 replaces each instance of $500,000 with $600,000 in the surtax formula found in clause 32(1)(b). Since that clause governs how an Ontario small business adds surtax in specified circumstances, the textual substitution changes the arithmetic that produces the surtax amount. The practical upshot is that surtax computations tied to the business limit will now use the higher number, which may reduce or shift surtax liabilities for affected corporations.
Retroactive effective date of January 1, 2024
The Act is expressly deemed to have come into force on January 1, 2024. That retroactivity means taxation years that began before the enactment date but include January 1, 2024 must apply the new rules—using the prorating approach where applicable. Retroactive commencement creates administrative tasks for filing, possible reassessments and the need for clear guidance from the Ontario Ministry of Finance.
Formal short title
This short provision simply names the statute the Cutting Taxes on Small Businesses Act, 2024. It has no substantive effect on tax computations but is the Act’s formal citation for legislative and administrative references.
This bill is one of many.
Codify tracks hundreds of bills on this topic across all five countries.
Explore this topic in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Ontario private corporations (CCPCs) with active business income between $500,000 and $600,000 — they gain eligibility (or increased benefit) for the SBD on that marginal $100,000, lowering provincial tax on that income.
- Ontario private corporations already below the previous $500,000 limit — the higher SBD rate (9.9% component for 2024 days) increases the deduction and reduces provincial tax payable across eligible income.
- Small‑business owners and managers — the increase in after‑tax cash flow improves liquidity for reinvestment, hiring, or debt service, altering near‑term business planning choices.
- Tax and accounting firms — they can advise on amended returns, optimisation opportunities and transitional calculations, creating immediate billable work around compliance and planning.
- Tax software vendors and payroll/tax preparers — they will capture new business in product updates and services to implement the prorated rate and raised threshold correctly.
Who Bears the Cost
- The Ontario Ministry of Finance and provincial revenue administration — lower corporate tax receipts and the administrative burden of issuing guidance, processing amended returns and handling reassessments.
- Federal‑ and provincial‑level tax compliance teams at corporations — one‑time and ongoing compliance costs to recalculate returns, update accounting systems and manage potential audits or reassessments.
- Tax practitioners and firms — operational costs associated with updating templates, recalculating past returns, and advising clients on the practical effects of the retroactive change.
- Tax software vendors — development and support costs to change calculation logic, testing and deploying updates to clients, especially to handle prorated taxation years.
- Businesses that lose access to alternative provincial incentives or face tighter municipal programs — while not directly levied by this bill, some firms may see net fiscal shifts as provincial budget priorities change to offset revenue losses.
Key Issues
The Core Tension
The central dilemma is straightforward: the legislation directs more tax relief to small incorporated businesses to shore up cash flow and support economic activity, but it does so at the cost of provincial revenue and by introducing retroactivity and calculation complexity that increase compliance and administrative burdens; policymakers must balance the immediate benefits to eligible firms against the systemwide cost of added complexity and fiscal strain.
The bill’s targeted relief creates several implementation and policy tensions. Retroactive commencement simplifies political presentation but forces practical decisions: should corporations amend 2023 returns, or wait for administrative guidance and potential reassessments?
The day‑count prorating approach is mechanically neat for split years, yet it places the onus on preparers and software to apply a precise calculation and produce consistent results across thousands of fiscal‑year taxpayers.
There are unanswered interactions with other rules that determine eligibility and allocation of the business limit. The bill alters the dollar cap but does not address how associated‑corporation rules, taxable capital thresholds, or federal small business measures should be coordinated.
That silence invites opportunistic tax planning (for example, re‑structuring or income timing) and raises the risk of disputes over precedence between provincial and federal computations. Finally, the fiscal trade‑off—reduced provincial receipts versus targeted relief—means future policy choices may revisit surtax mechanics or other offsets; the bill does not supply transitional funding or administrative resources to manage the change.
There's more to this law than the bill.
Codify Laws traces every connection across the legislative lifecycle.