Sole proprietorship or company in Canada: tax comparison

Taxes and contributions for a sole proprietor under each available system and for your own company, for a resident of the chosen country with the same profit.

Loading…

Form

Sole proprietor

Sole proprietorSole proprietorship

Profit goes on form T2125 with your T1 return. You pay federal tax at 14–33% and Ontario tax at 5.05–13.16% (plus surtax and the Ontario Health Premium), and CPP for both the employee and employer share: 11.9% of earnings between $3,500 and $74,600 and CPP2 of 8% up to $85,000. Half of the base contributions gives a credit; the rest is deducted from income.

Conditions

GST/HST: you must register once taxable supplies exceed $30,000 in a calendar quarter or over the last four quarters (small supplier rule); not included in the calculation.
Employment Insurance is not mandatory for the self-employed and is not included; the LIFT credit and the Canada employment amount do not apply, as they are only for employment income.

Canada Revenue Agency, Canadian income tax rates for individuals – current year (federal and Ontario brackets 2026) · Canada Revenue Agency, T4127 Payroll Deductions Formulas, January 2026 (basic personal amounts, Ontario surtax, tax reduction, Ontario Health Premium) · Employment and Social Development Canada, CPP 2026: YBE $3,500, YMPE $74,600, YAMPE $85,000; self-employed rates 11.90% and 8.00% · Income Tax Act, s. 60(e): deduction of 1/2 of base CPP and all enhanced CPP contributions on self-employed earnings · Government of Ontario, Low-income Individuals and Families Tax (LIFT) Credit (requires employment income)

Own corporation (CCPC)

CompanyCanadian-controlled private corporation (CCPC)

The corporation pays, on active business income up to $500,000, 9% federal (small business deduction) and Ontario 3.2% until 30 June 2026 and 2.2% from 1 July 2026 (prorated by days for a calendar year); above $500,000 it pays 15% and 11.5%. Dividends from this income are non-eligible: grossed up by 15%, then reduced by the federal credit (9/13 of the gross-up) and the Ontario credit (2.9863%).

Conditions

GST/HST: you must register once taxable supplies exceed $30,000 in a calendar quarter or over the last four quarters (small supplier rule); not included in the calculation.
If without the corporation you would be your client's employee (an "incorporated employee"), it is a personal services business: no small business deduction and a higher rate.
The $500,000 limit is shared among associated corporations; Ontario's small business rate is phased out for taxable capital between $10 million and $50 million.
From profit above $500,000 the corporation can pay eligible dividends (72% of that profit, GRIP): 38% gross-up, federal credit 6/11 of the gross-up, Ontario credit 10%.

Canada Revenue Agency, Corporation tax rates (federal net 15%, 9% with the small business deduction; Ontario 11.5%, lower rate 3.2% → 2.2% from 1 July 2026, business limit $500,000) · Government of Ontario, Corporate income tax (lower rate 2.2% from 1 July 2026; 3.2% from 1 January 2020 to 30 June 2026; general rate 11.5%) · Income Tax Act, s. 125: small business deduction 19%, business limit $500,000, personal services business · Income Tax Act, s. 82(1)(b): dividend gross-up 15% (non-eligible) and 38% (eligible) · Income Tax Act, s. 121: federal dividend tax credit 9/13 (non-eligible) and 6/11 (eligible) of the gross-up · Income Tax Act, s. 89(1): general rate factor 0.72 and general rate income pool (eligible dividends) · Government of Ontario, Ontario dividend tax credit (2020–2026: eligible 10.0%, other 2.9863%) · Canada Revenue Agency, Canadian income tax rates for individuals – current year (federal and Ontario brackets 2026) · Canada Revenue Agency, T4127 Payroll Deductions Formulas, January 2026 (basic personal amounts, Ontario surtax, tax reduction, Ontario Health Premium)

Assumptions

Business activity: IT / consulting services for business clients

One owner, tax resident of this country, no employees, no children, no other income; the business runs for the whole year.
Lives in Ontario; only the basic personal amount; the corporation's tax year is calendar 2026, so Ontario's small business rate is prorated: 181 days at 3.2% and 184 days at 2.2% (≈2.70%).
Corporation: all profit is active business income (not a personal services business), no associated corporations, taxable capital under $10 million; dividends from profit within $500,000 are non-eligible, from profit above it eligible up to 72%.
Company: the owner is the sole shareholder and director and takes no salary; profit after corporate tax is either paid out in full as dividends in the same year or kept in the company.
Expenses are documented business costs fully deductible in the year they are incurred; depreciation rules, prior-year losses and voluntary pension contributions are not modelled.
VAT (or GST/HST) and sales taxes are not included: they are passed on to clients and do not reduce profit.

Sources: Canada Revenue Agency, Canadian income tax rates for individuals – current year (federal and Ontario brackets 2026) · Canada Revenue Agency, T4127 Payroll Deductions Formulas, January 2026 (basic personal amounts, Ontario surtax, tax reduction, Ontario Health Premium) · Employment and Social Development Canada, CPP 2026: YBE $3,500, YMPE $74,600, YAMPE $85,000; self-employed rates 11.90% and 8.00% · Income Tax Act, s. 60(e): deduction of 1/2 of base CPP and all enhanced CPP contributions on self-employed earnings · Government of Ontario, Low-income Individuals and Families Tax (LIFT) Credit (requires employment income) · Excise Tax Act, s. 148: small supplier threshold $30,000 · Canada Revenue Agency, Corporation tax rates (federal net 15%, 9% with the small business deduction; Ontario 11.5%, lower rate 3.2% → 2.2% from 1 July 2026, business limit $500,000) · Government of Ontario, Corporate income tax (lower rate 2.2% from 1 July 2026; 3.2% from 1 January 2020 to 30 June 2026; general rate 11.5%) · Income Tax Act, s. 125: small business deduction 19%, business limit $500,000, personal services business · Income Tax Act, s. 82(1)(b): dividend gross-up 15% (non-eligible) and 38% (eligible) · Income Tax Act, s. 121: federal dividend tax credit 9/13 (non-eligible) and 6/11 (eligible) of the gross-up · Income Tax Act, s. 89(1): general rate factor 0.72 and general rate income pool (eligible dividends) · Government of Ontario, Ontario dividend tax credit (2020–2026: eligible 10.0%, other 2.9863%)

Checked: November 4, 2026

An estimate for a typical case: VAT, start-up reliefs, other income and family reliefs are not included. Not tax advice.