Alberta Small Business Deduction (SBD) Guide 2025

Alberta's Small Business Deduction (SBD) is a cornerstone of Alberta's business-friendly tax environment. It offers a substantially reduced provincial corporate tax rate on the first $500,000 of active business income for eligible Canadian-Controlled Private Corporations (CCPCs). Alberta maintains one of the most competitive small business tax regimes in Canada, with the SBD playing a major role in attracting new businesses, supporting entrepreneurship, and powering economic growth. Combined with Alberta's absence of a provincial sales tax and its streamlined tax structure, the SBD is a key reason why many business owners choose Alberta for incorporation or expansion.

What is the Alberta Small Business Deduction?

The Alberta SBD is a provincial tax rate reduction for eligible CCPCs on up to $500,000 of active business income each year. For 2025, Alberta’s small business corporate income tax rate is 2% (subject to change in future budgets), compared to the general corporate rate of 8%. When combined with the federal SBD, a qualifying Alberta small business pays a much lower tax rate on its first $500,000 of active business profits.

Eligibility for Alberta SBD

Must be a Canadian-Controlled Private Corporation (CCPC) throughout the tax year.
Carry on active business income (not investment income, specified investment businesses, or personal services businesses).
Taxable capital employed in Canada across the associated group must be under $15 million (the SBD is phased out between $10–15 million).
The $500,000 SBD limit is shared among associated corporations.
The corporation must have a permanent establishment in Alberta.

Note: Professional corporations, investment holding companies, and some personal service businesses may not qualify for the SBD.

Alberta Small Business Tax Rate (2025)

Income Bracket	Alberta Tax Rate	Federal Tax Rate	Combined Rate
First $500,000 active business income (CCPC, SBD eligible)	2%	9%	11%
Income above $500,000	8%	15%	23%

Tip: Claiming both Alberta and federal SBD is automatic if you file all schedules correctly. If you have associated companies, ensure the $500,000 limit is allocated among them and reported on your return.

Step-by-Step: How to Claim the Alberta SBD

Prepare your T2 Corporation Income Tax Return and all necessary Alberta schedules (especially Schedule AB428 for Alberta tax calculation).
Report your active business income and allocate the SBD limit if you have associated corporations (use Schedule 23 to allocate among associated groups).
Ensure your tax software or preparer correctly calculates the SBD and applies the 2% rate to the eligible income.
Include supporting records: incorporation documents, income breakdowns (active vs. investment), and association schedules.
Keep a copy of your filed return and all schedules in case of CRA or Alberta audit.

Where to find the forms: Alberta Corporate Tax Forms

Calculation Examples

Example 1: Single Alberta CCPC

ABC Consulting Inc. earns $300,000 in active business income (ABI) in Alberta, with no associates.
On the first $300,000: Alberta tax = $300,000 x 2% = $6,000; Federal tax = $300,000 x 9% = $27,000.
Total tax on first $300,000: $33,000 (11%).
If ABC earns $700,000 ABI, then:
- First $500,000 at 2% AB + 9% Fed = 11% ($55,000 total tax)
- Remaining $200,000 at 8% AB + 15% Fed = 23% ($46,000 tax)

Example 2: Associated Corporations

ABC Consulting Inc. and XYZ Holdings Inc. are associated (common ownership), both CCPCs in Alberta.
The $500,000 SBD limit must be shared. If split 60/40, ABC claims $300,000 at 2%, XYZ claims $200,000 at 2% (report on Schedule 23).
Any income above the limit is taxed at general rates (8% AB, 15% Fed).

Common SBD Filing Errors (and How to Avoid Them)

Not allocating the SBD limit among associated corporations (CRA/Alberta will adjust or deny claim).
Claiming SBD on investment or passive income (only active business income is eligible).
Missing required Alberta schedules (e.g., AB428, association schedules).
Incorrectly reporting permanent establishment—if your corporation operates in more than one province, you must apportion income and tax accordingly.
Professional corporations assuming automatic eligibility—some (e.g., certain physicians, lawyers) may be excluded if deemed a personal services business.

How to avoid audit: Double-check all income allocations, keep clear documentation, and if unsure, consult an Alberta corporate tax specialist before filing.

How Alberta's SBD Compares to Other Provinces

Alberta: 2% on first $500,000 ABI — among the lowest rates in Canada.
BC & Ontario: Both are 2% on first $500,000 (BC) and 3.2% (Ontario) in 2025.
Manitoba: 0% on first $500,000 (the only province with a zero provincial rate for SBD).
Saskatchewan: 0% on first $600,000.
Quebec: 3.2%, with additional employee hours or sector requirements.

Alberta stands out for its simplicity, low rate, and lack of a provincial sales tax, making it a preferred destination for CCPCs and startups.

Frequently Asked Questions (FAQ)

Can I claim both the Alberta and federal SBD?

Yes. Most Alberta CCPCs can claim both the provincial and federal small business deduction, subject to eligibility and the shared $500,000 limit. This provides a major tax advantage for eligible small businesses.

Can my professional corporation claim the Alberta SBD?

Some professional corporations (e.g. physicians, lawyers) may not be eligible if they are deemed a personal services business. Always confirm with a tax professional.

What if I have companies associated across provinces?

The $500,000 SBD limit is shared among all associated CCPCs in Canada, regardless of province. You must allocate the limit on your tax return and relevant provincial schedules.

How does fiscal year-end affect my SBD limit?

If your fiscal year is not January–December, prorate the $500,000 limit according to the number of days in the tax year. CRA Form T2SCH23 helps with this calculation.

Can new startups claim the SBD in their first year?

Yes, provided they are incorporated as a CCPC, carry on active business in Alberta, and meet all eligibility criteria. The SBD limit may be prorated for a short tax year.

Where do I find official SBD rates and rules?

See the Alberta government corporate tax page and CRA's Small Business Deduction page for the latest rates and legislation.

Are there extra forms if I operate in more than one province?

Yes. You must apportion income and tax among provinces using Schedule 5 and the relevant provincial schedule for each province in which you have a permanent establishment.