New Brunswick Small Business Deduction (SBD): Eligibility, Claim Process & Maximization (2025)
The Small Business Deduction (SBD) is New Brunswick’s cornerstone corporate tax incentive for Canadian-Controlled Private Corporations (CCPCs). By allowing eligible small businesses to pay a reduced provincial corporate income tax rate on their first $500,000 of active business income (ABI), the SBD supports local job creation, investment, and entrepreneurship.
Economic Impact: The SBD makes NB one of the most attractive provinces for small business, especially when combined with the federal SBD. This deduction helps small companies invest, hire, and expand by saving thousands each year on taxes. The SBD is a key reason why New Brunswick is a launchpad for startups, manufacturers, and service companies seeking to maximize after-tax profits.
What is the New Brunswick Small Business Deduction?
Quick Facts:
• NB SBD reduces the provincial corporate tax rate on the first $500,000 of qualifying ABI for eligible CCPCs.
• For 2025, the NB small business corporate tax rate is 2.5% (vs. general NB corporate rate of 14%).
• Works in combination with the federal SBD.
• The $500,000 SBD limit is shared among all associated corporations (Canada-wide, not just NB).
- Deduction Limit: Up to $500,000 in ABI per associated group (shared between all associated corporations)
- Eligible Entities: Canadian-Controlled Private Corporations (CCPCs) with a permanent establishment in NB
- Eligible Income: Active business income (not investment or specified corporate income)
Eligibility Criteria
- Must be a CCPC throughout the tax year
- Carry on active business in New Brunswick with a permanent establishment
- Taxable capital employed in Canada (including associated corporations) generally must be less than $15 million (full SBD under $10M, phased out $10M–$15M)
- Not a professional corporation (with some exceptions)
Phased-Out Threshold: If your group’s taxable capital (Canada-wide) is $10M–$15M, the $500,000 SBD limit is reduced on a sliding scale. Over $15M, SBD is not available.
How SBD Works with Other Credits
- You may claim the NB SBD and the federal SBD on the same ABI portion (but only once per associated group).
- SBD is combinable with most NB business credits (e.g., Innovation Tax Credit, Hiring Credits, Clean Tech Credit), provided there’s no double-claiming of the same dollar of income/expense.
- NB SBD reduces provincial tax; other credits may reduce tax further or provide refunds on top.
Moncton, NB – thriving business hub
NB SBD: Key Details, Claim Steps & Practical Examples
- Phased-Out Rules: SBD limit is reduced to $0 if taxable capital (including associated corps) = $15M+; phased down from $500k to $0 between $10–$15M.
- Ineligible Income: Investment income, specified corporate income, and professional corps (with some exceptions) do not qualify.
- Stacking with Federal SBD: NB and federal SBD can be claimed on the same $500k ABI, but only once across all associated companies.
- Filing: File NB428 with your T2; keep allocation agreements on file if required.
- Changes: Check for annual rate or threshold updates each year.
Tip: If your company is part of an associated group, you must file an Agreement to Allocate SBD among all corporations to ensure the $500,000 limit is not exceeded. This is a common audit focus.
Step-by-Step: How to Claim the SBD
- Calculate your active business income for the year (up to $500,000, shared with associated group).
- Determine your taxable capital employed in Canada (including all associated corps) to check phase-out status.
- Complete NB428 (New Brunswick Corporate Tax Calculation) with your T2 return.
- If you have associated corps, complete the Agreement to Allocate SBD and attach as needed.
- Apply the 2.5% small business rate to your eligible ABI. Tax any excess at the general NB rate.
- Also claim the federal SBD on the same ABI via T2 Schedules 23 and 4.
- Retain all supporting documentation: payroll records, capital calculations, allocation agreements, and evidence of active business income.
Calculation Examples
- Simple Example: NB CCPC (no associated corps), $300,000 ABI, taxable capital $2M.
→ $300,000 x 2.5% = $7,500 NB tax (vs. $42,000 at general 14% rate; saves $34,500/year).
→ Also claim federal SBD for further savings. - Associated Corps Example: Two NB CCPCs (A & B) under same group, $400k and $250k ABI, respectively. Must allocate $500k SBD limit.
→ Allocate $300k to A, $200k to B (total $500k).
→ Each claims SBD rate on their portion, remainder at general rate.
→ File allocation agreement with T2 returns. - Phased-Out Example: NB CCPC, $12M taxable capital.
→ SBD limit is reduced: $500k x (15M – 12M) / 5M = $300k SBD limit.
Documentation: Keep all T4s, payroll records, capital employed calculations, agreements, and tax working papers for at least 7 years in case of audit.
Maximizing Your Small Business Tax Savings
- Ensure your business structure is optimal—review association rules if you own/control multiple companies.
- Keep detailed records of active business income, payroll, and capital employed.
- Work with a professional for tax planning if your business is near the phase-out thresholds ($10M+ capital).
- Combine the NB SBD with the federal SBD and other business incentives (e.g. Innovation, Clean Tech, Hiring Credits) for maximum tax efficiency.
Need more help? See the New Brunswick Business Tax Credits Directory for other credits, or check our Small Business Deductions Guide for more tips.
Practical Scenarios
- Startup Scaling Up: Startup NB CCPC grows from $250k to $700k ABI. First $500k taxed at 2.5%, next $200k at 14%.
- Family-Owned Group: Parent owns two NB CCPCs. Each earns $200k ABI. Allocate $250k SBD to each; each claims 2.5% on $250k, general rate on remainder.
- Near the Capital Threshold: NB CCPC with $14.5M capital. SBD limit nearly phased out; tax planning required to avoid losing SBD eligibility.
Frequently Asked Questions (FAQ)
Can I claim NB SBD if I’m incorporated federally but operate in NB?
Yes, as long as you have a permanent establishment in NB (e.g., active office, employees). The SBD is based on actual provincial income allocation.
What documentation is required for SBD claims?
Maintain detailed financials, T2/NB428, capital employed calculations, SBD allocation agreements (if associated corps), and evidence of active business activities in NB. CRA and NB authorities may audit SBD claims years later.
Can I combine NB SBD with Innovation, Clean Tech, or Hiring Credits?
Yes, as long as you don’t double-claim the same dollar of income or expense. SBD reduces your tax rate on profits; other credits reduce tax further or provide refunds.
What are common pitfalls in SBD claims?
Failing to allocate the $500k limit among associated corps, missing phased-out rules, not keeping allocation agreements, and claiming ineligible income (investment/professional) are frequent issues found during audits.
How do I claim SBD if my corporation is active in multiple provinces?
Allocate ABI to each province based on revenue, payroll, and assets. File SBD claim in each province where eligible, but total SBD claims (all provinces) must not exceed $500k for the associated group.
Can professional corporations claim NB SBD?
In most cases, professional corporations (doctors, lawyers, accountants, etc.) are excluded from SBD, but exceptions may apply. Review current NB tax rules or consult a pro.