BC Small Business Deduction (SBD) Guide for 2025
The BC Small Business Deduction (SBD) provides eligible Canadian-Controlled Private Corporations (CCPCs) with a significantly reduced provincial corporate income tax rate on their first $500,000 of active business income. Combined with the federal SBD, this deduction can reduce your business's effective tax rate and free up cash for reinvestment and growth.
What is the BC Small Business Deduction?
The BC SBD sets a lower provincial corporate tax rate (currently 2% as of 2025) on the first $500,000 of active business income earned by a qualifying CCPC. This is in addition to the federal SBD, letting small businesses benefit from both a lower federal and lower provincial rate on qualifying income. Above the $500,000 limit, the general BC corporate tax rate (12%) applies.
Quick Facts:
- BC SBD Rate: 2% (as of 2025)
- General BC Corporate Rate: 12%
- SBD Limit: First $500,000 of active business income (shared with federal SBD)
- Eligible Businesses: Canadian-Controlled Private Corporations (CCPCs)
Eligibility for the BC Small Business Deduction
- CCPC Only: Your company must be a Canadian-Controlled Private Corporation throughout the tax year.
- Active Business Income: Only applies to active business income (not investment or specified investment business income).
- SBD Limit Sharing: If your company is associated with others, the $500,000 limit is shared among the group.
- Taxable Capital: SBD is gradually reduced if your group’s taxable capital employed in Canada exceeds $10 million; fully eliminated at $15 million and above.
- Professional Corporations: May be eligible if all other criteria are met.
- Filing Requirement: Must file a BC T2 return and claim SBD via the correct schedules (see below).
How to Claim the BC Small Business Deduction
- Calculate your corporation’s active business income for the year.
- Determine your available SBD limit (consider associated companies and phase-out if applicable).
- Complete Schedule 23 (Agreement Among Associated CCPCs) if needed.
- File your T2 return with BC Form BC428 (British Columbia Corporation Tax Calculation) and BC479 (to claim credits), reflecting the SBD claim.
- Also claim the federal SBD using Schedule 23 and Schedule 4 on your T2.
Tip: Many small business owners miss out on maximizing the SBD by not coordinating the federal and BC claim, or by not properly allocating the SBD limit among associated companies. If you have a corporate group, consult a tax professional for optimal allocation.
Maximizing the BC SBD: Strategies & Pitfalls
- Monitor Taxable Capital: Keep your taxable capital under $10 million if possible to avoid phase-out.
- Optimize Corporate Structure: Review for associated corporations and plan SBD allocation to maximize group benefits.
- Active Income Only: Ensure you’re only claiming SBD on eligible active business income.
- File Correct Schedules: Incomplete or incorrect schedules can delay or deny your SBD claim.
- Combine with Other Credits: The SBD can be stacked with many other BC and federal credits. See our BC Business Tax Credits Directory for more.
BC SBD: Frequently Asked Questions
Can I claim both the federal and BC Small Business Deduction?
Yes. Both deductions apply to the same first $500,000 of active business income. You must claim each on the appropriate federal and provincial forms.
What if my company is part of an associated group?
You must share the $500,000 SBD limit among all associated companies. An agreement must be filed with your T2 return.
Is investment income eligible for the SBD?
No. SBD only applies to active business income earned in Canada. Investment income and specified investment businesses do not qualify.
How do I calculate the phase-out for taxable capital?
If your (and associated companies’) taxable capital employed in Canada exceeds $10 million, the SBD is gradually reduced and eliminated at $15 million. Complete the phase-out calculation on the applicable T2 schedules or consult your accountant.