ExampleBusiness income $150,000 · Personal expenses $80,000 · Ontario

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🏢Incorporation Could Save TaxSBD 12.2% Combined
Annual saving: +$23,459/yrBreakeven income: $50,000
Sole Proprietorship vs Corporation
🏢Business Scenario
Net Business Income?
$
Personal Living Expenses?
$
Retained in corp$131,700
Corp effective rate0.1%
Annual tax saving+$23,459
Annual Saving
+$23,459
incorp vs sole prop
Corp Take-Home
$80,000
after corp + dividend tax
Sole Prop Tax
$41,759
personal income tax
Corp Retained
$131,700
left inside corporation
👤Sole Proprietorship
Business Income$150,000
Personal Tax−$41,759
Effective Rate0.3%
Take-Home$108,241
🏢Corporation (CCPC)
Corp Tax (SBD)−$18,300
Retained in Corp$131,700
Dividend Paid$80,000
Dividend Tax−$0
Take-Home$80,000
Total Tax−$18,300
Incorporating could save significant tax. Consult an accountant.
💡Key Considerations▼
📋How to Incorporate in Canada
1.Choose federal or provincial: Federal incorporation gives you the right to operate across Canada under one name. Provincial is simpler and cheaper for local businesses.
2.File articles of incorporation: Through Corporations Canada (federal ~$200) or your provincial registry. You can choose a numbered company to save time.
3.Get a Business Number + T2 account: CRA issues a 9-digit BN and opens your Corporate Income Tax account automatically in most cases.
4.Register extra-provincially if you operate in other provinces.
5.Annual obligations: T2 corporate return due 6 months after fiscal year end. Balance owing due 3 months after year end for private corps.
canada.ca – Registering a corporation ↗
🏛️Small Business Deduction Rates▲
Your selected province
Federal SBD rate9.0%
Provincial SBD rate (ON)3.2%
Combined rate12.2%
▸SBD applies to the first $500,000 of active business income for Canadian-controlled private corporations (CCPCs).
▸Tax deferral benefit: corp tax is paid now, personal tax on dividends is deferred until you pay yourself - allowing retained earnings to compound.
▸Passive income limit: SBD reduces if passive investment income in the corp exceeds $50,000/yr (phased out by $150,000).
🏆Lifetime Capital Gains Exemption▼
⚠️When NOT to Incorporate▼
🔗Business Calculators▼

What's Next?

Tax Reserve PlannerWhether sole prop or incorporated - know exactly how much to set aside for CRASelf-Employment CostSee the real cost of double CPP, no EI, and deductible expensesSalary & TaxCompare your take-home against an employment salary in the same provinceAccount OptimizerOnce you're paying yourself - RRSP vs TFSA priority for retained savings

Simplified comparison using 2026 SBD rates and eligible dividend tax integration. Does not account for CPP contributions, salary vs dividend mix optimization, or complex tax planning. CCPC SBD applies to first $500,000 of active business income. LCGE $1.25M for qualifying shares. Source: canada.ca. Consult a CPA. Not financial advice.

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About this calculator

Updated April 2026

Incorporating in Canada unlocks the small business deduction (9% federal + 0–3.2% provincial on the first $500k of active business income) but adds $2,000–$5,000/year in compliance costs. This calculator finds the income breakeven where incorporation saves you money net of those costs - usually around $100,000–$150,000 depending on province and how much you actually need to spend personally.

What you can do with it

  • Find your personal incorporation breakeven by province.
  • Compare salary-only vs dividend-only vs salary+dividend payout strategies.
  • See how much corporate tax deferral is worth if you leave surplus inside.
  • Model the tax cost of a $5,000 accountant and legal fee each year.

How the math works

The tool computes total tax (corporate + personal) for a sole proprietor at your income vs a CCPC paying enough salary or dividend to net the same amount to you. Retained corporate earnings are taxed at the small business rate (typically 11–13% combined). Integration (the principle that personal + corporate tax should equal sole-prop tax) isn't perfect, creating a small 'cost' or 'benefit' depending on province.

Canadian context - 2026

In Ontario, the combined small business corporate tax rate is 12.2%. An Ontario sole prop earning $150k net pays roughly $45,000 in personal tax; an incorporated version drawing a $60k salary + $50k dividend + leaving $40k retained pays about $38,000 combined - a ~$7,000 saving, partially offset by $3,000 in accountant/legal fees.

Frequently asked questions

At what income level does incorporation make sense in Canada?

The breakeven varies by province, but most accountants cite $100,000–$150,000 in business income as a starting range where corporate tax deferral (small business rate ~9% vs personal rate of 40%+) begins to outweigh incorporation costs. The calculator shows your specific breakeven based on province and income.

What is the Small Business Deduction (SBD)?

The SBD reduces the federal corporate tax rate to 9% on the first $500,000 of active business income for Canadian-Controlled Private Corporations (CCPCs). Combined with provincial small business rates, the total rate is typically 10–13% depending on province-significantly below personal marginal rates at higher incomes.

What are the downsides of incorporating?

Costs include annual accounting fees ($1,500–$4,000+), provincial registration, potential need for a separate business bank account, and more complex tax filing. Income left in the corporation cannot be spent personally without triggering additional tax. Incorporation is most beneficial when you can leave surplus in the company.

Go deeper - related guides

Long-form explainers that pair with this calculator.