How it works
- Sole proprietor: all business profit is taxed personally this year, and you pay both halves of CPP and CPP2.
- Corporation: profit is taxed at 11.7% for 2026 (blended for Ontario's 1 July rate cut) or 11.2% for 2027 on the first $500,000, and 26.5% above that. You pay yourself dividends only up to your after-tax living costs; the rest stays in the corporation.
- Tax deferral
- Tax deferral is tax you do not pay this year because profit stays inside the corporation. It is not eliminated: it is paid when the money is later taken out, though in the meantime you can invest it or use it to grow the business.
Before you incorporate
- Incorporating has costs: set-up, a separate bank account, annual corporate returns and financial statements, and more bookkeeping.
- Paying yourself only dividends means no CPP contributions, so no CPP pension and no RRSP room.
- If you need every dollar the business earns to live on, there is little to defer and the case is weaker.
- Liability protection, selling the business later and bringing in partners are reasons beyond tax.
The rule of thumb many owners hear is that incorporation starts to make sense when the business earns materially more than you need to spend. This calculator shows how much more, in your numbers.
Questions
At what income should I incorporate?
There is no single number. The benefit comes from the profit you leave in the corporation, so it depends on the gap between what the business earns and what you need to live on, and on the extra cost of running a corporation.
Is the corporate tax saving permanent?
Mostly not. Integration means the money is taxed again when paid out as a dividend, so the main advantage is deferral. There can be a modest permanent difference depending on rates and timing.
Does this include the cost of running a corporation?
Only if you enter it. Add your own estimate of the extra annual accounting and legal cost so the comparison is like for like.
Estimates use 2026 and 2027 federal and Ontario rates for individuals and Canadian-controlled private corporations. 2027 figures marked projected are our calculation until the CRA publishes them, and are for illustration only. They leave out many personal credits, deductions and elections. Talk to a CPA before acting on compensation, incorporation or tax decisions.