Incorporation vs Sole Proprietorship Calculator
Compare incorporating against staying a sole proprietor for 2026. A sole proprietor's business income is taxed once, immediately, at full personal marginal rates. A Canadian-controlled private corporation (CCPC) instead pays the small business rate on its first $500,000 of active income — 11% in Alberta and BC, 11.7% in Ontario for 2026 — and personal tax on any profit is deferred until it is paid out as salary or dividends. Enter your business profit and how much you plan to withdraw to see the after-tax cash under each structure.
Estimate only for the 2026 tax year. Not tax, accounting or financial advice. Talk to RN Canada about your situation.
How it works
The calculator applies the small business corporate tax rate to profit kept in the corporation, then models withdrawing part of it as a non-eligible dividend (grossed up and offset by the dividend tax credit) alongside personal income tax on the sole-proprietor path, so both routes are compared on the same pre-tax profit.
What the result includes
Results cover all three scenarios side by side — staying a sole proprietor, incorporating and paying yourself salary, and incorporating and paying yourself dividends — plus the estimated break-even point between them and the annual dollar difference. Each scenario shows the underlying numbers: employer payroll cost for the salary route, estimated dividend tax for the dividend route, your personal after-tax cash in hand, and the corporate earnings retained inside the company.
Assumptions
Business profit is derived as your annual revenue minus business expenses, floored at zero if expenses exceed revenue. Any other personal income you enter is stacked on top of the business income to estimate your marginal tax rate, so it can push withdrawals into a higher bracket. Turning off small business deduction eligibility applies the general corporate rate instead of the small business rate, reflecting a CCPC that is over the $500,000 limit, associated with other corporations, or otherwise not eligible. Choosing a salary, dividend or balanced preference only decides which scenario is highlighted as the recommended one — all three scenarios are calculated regardless of your selection. Only Alberta, British Columbia and Ontario are supported.
Frequently asked questions
Not always. Incorporating helps most when you can leave profit inside the corporation to defer personal tax, or when liability protection matters. If you need to withdraw all your profit every year, the combined corporate-then-personal tax can be similar to, or higher than, paying personal tax directly as a sole proprietor.
Entering revenue and expenses separately lets the calculator derive your business profit itself (revenue minus expenses, floored at zero) and keeps the inputs closer to how a bookkeeping file is actually organized, rather than asking you to calculate profit by hand first.
Other personal income (a spouse's job, investment income, another business) is added on top of the business income when estimating your marginal tax rate. A higher combined income can push salary or dividend withdrawals into a higher personal tax bracket, which the calculator reflects in the after-tax cash figures.
It refers to whether your corporation qualifies as a CCPC earning active business income under the $500,000 small business deduction limit. If you mark it as not eligible, the calculator applies the higher general corporate rate instead of the reduced small business rate.
No. All three scenarios — sole proprietorship, corporation with salary, and corporation with dividends — are calculated on the same inputs regardless of your preference. The preference only determines which scenario the calculator highlights as the suggested comparison.
No. A sole proprietorship is not a separate legal entity, so all business profit is reported directly on the owner's personal tax return and taxed once at personal rates, with no corporate layer.
Incorporation involves setup fees, an annual corporate (T2) tax return, and generally higher bookkeeping costs than a sole proprietorship. This calculator focuses on the tax comparison; talk to RN Canada about the full cost picture.
Last reviewed: 2026-08-19. Sources: Canada Revenue Agency — Business or professional income, Canada Revenue Agency — Small business deduction