Should I incorporate? Sole proprietor vs corporation calculator 2026
Incorporating alone does not cut this year's tax. On $150,000 of profit in BC, taking every dollar out as salary changes 2026 tax and CPP by about $210. The difference comes from profit left in the company: take out $80,000 and about $10,315 less is paid this year, while $35,629 stays in the company, taxed when it comes out.
2026 rates, checked 28 Oct 2026BC and AlbertaEstimate onlySummary free, no sign-up
Is this the right calculator? Already incorporated and choosing how to pay yourself: the salary vs dividend calculator. Staying a sole proprietor and want your full return: the self-employed tax calculator.
Your 2026 estimate
$210 less
As a sole proprietor you would pay about $44,686 in income tax and CPP on $150,000 of profit in BC. Through a corporation, taking every dollar out as salary, about $44,476. That is $210 less this year, with nothing left in the company.
- Everything out as salary changes little. Both routes pay income tax and both halves of CPP on the same amount; the difference is the Canada employment amount ($1,501 × 14%). The costs of running a corporation would usually be more than that. Choose "Only what I need" to see what leaving profit in the company does.
Estimate, not tax advice. General information based on 2026 figures and a simplified company; your situation may differ. Incorporation is also a legal step: we work alongside your lawyer.
See every line behind this numberBoth routes line by line, all three corporation options side by side, what to do nextTalk it through before you decide
We'll look at your profit, what you need to live on and what a corporation would cost you.
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2026 rates used in this estimate2026 tax year (returns filed in 2027). From our tax engine; each table has its source below, checked 28 Oct 2026.
| First $500,000 | Above that | |
|---|---|---|
| British Columbia | 11% 9% federal + 2% BC | 27% 15% federal + 12% BC |
| Alberta | 11% 9% federal + 2% AB | 23% 15% federal + 8% AB |
| Eligible | Non-eligible | |
|---|---|---|
| Gross-up | 38% | 15% |
| Federal credit | 15.0198% | 9.0301% |
| BC credit | 12% | 1.96% |
| Alberta credit | 8.12% | 2.18% |
Credits are a percentage of the grossed-up (taxable) dividend.
| CPP rate (employee, employer pays the same) | 5.95% of earnings from $3,500 to $74,600 |
| CPP2 rate (employee, employer pays the same) | 4% of earnings from $74,600 to $85,000 |
| Maximum CPP + CPP2 (employee) | $4,646.45 |
| Self-employed CPP | Both shares: 11.9% and 8% |
| EI rate (employee) | 1.63% up to $68,900 (max $1,123.07) |
| EI employer | 1.4 × the employee premium |
| Taxable income | Rate |
|---|---|
| Up to $58,523 | 14% |
| $58,523 to $117,045 | 20.5% |
| $117,045 to $181,440 | 26% |
| $181,440 to $258,482 | 29% |
| Over $258,482 | 33% |
| Taxable income | Rate |
|---|---|
| Up to $50,363 | 5.6% |
| $50,363 to $100,728 | 7.7% |
| $100,728 to $115,648 | 10.5% |
| $115,648 to $140,430 | 12.29% |
| $140,430 to $190,405 | 14.7% |
| $190,405 to $265,545 | 16.8% |
| Over $265,545 | 20.5% |
| Taxable income | Rate |
|---|---|
| Up to $61,200 | 8% |
| $61,200 to $154,259 | 10% |
| $154,259 to $185,111 | 12% |
| $185,111 to $246,813 | 13% |
| $246,813 to $370,220 | 14% |
| Over $370,220 | 15% |
| Amount | Credit rate | |
|---|---|---|
| Federal basic personal amount | $16,452 falls to $14,829 between $181,440 and $258,482 of net income | 14% |
| Canada employment amount (federal) | $1,501 | 14% |
| BC basic personal amount | $13,216 | 5.6% |
| BC tax reduction | $690 less 3.56% of net income over $25,570 | – |
| Alberta basic personal amount | $22,769 | 8% |
| 2026 RRSP dollar limit | $33,810 |
| 2027 RRSP dollar limit | $35,390 |
| New room | 18% of last year’s earned income, up to the limit |
| Expected deadline for 2026 contributions | Monday, March 1, 2027 |
Sources: CRA corporation tax rates, B.C. corporate rates, Alberta corporate rates, CRA T5 guide (gross-up and credit), B.C. dividend and basic credits, CRA CPP rates, CRA CPP2 rates, CRA 2026 brackets, B.C. 2026 rates, Alberta 2026 rates, checked 28 Oct 2026. The Alberta dividend credits are the rates in the Alberta Personal Income Tax Act, s.21. The same engine runs our salary vs dividend and income tax calculators.
Estimate only, general information, not tax advice. Your situation may differ; book a free 15-minute call before acting. The sole proprietor side uses the 2026 federal, BC and Alberta brackets, the basic personal amounts and both halves of CPP from our income tax engine. The corporation side assumes a Canadian-controlled private corporation whose income all qualifies for the small business deduction, an owner with more than 40% of the voting shares (so no EI), and non-eligible dividends. It leaves out the BC employer health tax, WorkSafeBC and Alberta WCB premiums, passive income and taxable capital rules, eligible dividends and refundable taxes, associated companies, income splitting rules, minimum tax, other credits and deductions, liability and the lifetime capital gains exemption. Incorporation is a legal step as well as a tax one: this is general information, not legal advice, and we work alongside your lawyer.
Sole proprietor or corporation, line by line
Both routes for 2026 with a sentence on why each figure is there, the three ways to run a corporation side by side, and what to weigh next. It follows every change you make above.
| Line | Amount |
|---|---|
| A. Sole proprietor | |
| Net business incomeTaxed as your own income on your personal return (line 13500). | $150,000 |
| Federal taxFrom the federal brackets, 14% to 33%, less credits. | $24,461.43 |
| BC taxFrom the BC brackets, less credits and the BC tax reduction. | $10,931.65 |
| CPP and CPP2, both halves11.9% of profit from $3,500 to $74,600 and 8% to $85,000. Half the base contribution and all enhanced contributions are deductible; the remaining base portion gives a tax credit. | $9,292.90 |
| Total tax and CPP, sole proprietor | $44,685.98 |
| Cash in your handsProfit less income tax and CPP. Nothing is deferred. | $105,314.02 |
| B. Corporation, everything out as salary | |
| SalaryThe whole profit less the company's half of CPP, so nothing is left in the company. | $145,353.55 |
| Company's share of CPPThe employer half, 5.95% to $74,600 and 4% to $85,000; deductible for the company. | $4,646.45 |
| Profit left to tax in the companyProfit less salary and the company's CPP. | $0 |
| Corporate tax11% (9% federal + 2% BC) on the first $500,000; 27% above. | $0 |
| Dividends (non-eligible)Paid from profit after corporate tax, grossed up 15% with the dividend tax credits. | $0 |
| Personal income taxFederal $24,251.29 and BC $10,931.65 on your salary and dividends, with the Canada employment amount. | $35,182.94 |
| Your share of CPPThe employee half, taken off your pay. | $4,646.45 |
| Total tax and CPP, corporationCorporate tax + personal tax + both halves of CPP. | $44,475.84 |
| Cash in your handsSalary and dividends less personal tax and your CPP. | $105,524.16 |
| Left in the companyAfter corporate tax and your pay. It has not been taxed personally yet. | $0 |
| Estimated additional dividend tax at 2026 rates, if what is left is paid out as a dividendOn top of this year's pay; less in a lower-income year. | $0 |
| Total if everything were paid outTax and CPP now plus the estimated additional dividend tax. | $44,475.84 |
| C. The difference | |
| Income tax (personal and corporate)Sole proprietor less corporation. | $210.14 less |
| CPPBoth routes pay both halves on salary; dividends pay none. | no difference |
| Tax and CPP paid this year, before the costs of a corporation | $210.14 less |
| Yearly costs of running a corporationAs you entered them; the company could also deduct them, which is left out. | $0 |
| Difference after those costs | $210.14 less |
| Difference if everything were paid outOnce the money left in the company comes out too. | $210.14 less |
What this means
- Taking every dollar out leaves nothing in the company, so there is nothing to defer. The two routes pay almost the same.
- CPP is not a tax: it buys a CPP retirement pension. Salary through a corporation pays the same both halves as a sole proprietor does.
- A corporation adds yearly costs (T2 return, annual report, bookkeeping, payroll or T5 filings). Enter your estimate above to see the difference after them.
Sole proprietor against the three ways to run a corporation
Scroll the table sideways to see every column.
| Item | Sole proprietor | Corporationeverything as salary | Corporationeverything as dividends | Corporation$80,000 in hand, 100% salary |
|---|---|---|---|---|
| Salary | – | $145,354 | $0 | $105,321 |
| Dividends | – | $0 | $133,500 | $0 |
| Corporate tax | – | $0 | $16,500 | $4,404 |
| Personal income tax | $35,393 | $35,183 | $22,995 | $20,675 |
| CPP (both halves) | $9,293 | $9,293 | $0 | $9,293 |
| Tax and CPP paid this year | $44,686 | $44,476 | $39,495 | $34,371 |
| Difference this year, before costs | – | $210 less | $5,191 less | $10,315 less |
| Cash in your hands | $105,314 | $105,524 | $110,505 | $80,000 |
| Left in the company | – | $0 | $0 | $35,629 |
| Estimated additional dividend tax at 2026 rates | – | $0 | $0 | $10,388 |
| Total if everything were paid out | $44,686 | $44,476 | $39,495 | $44,759 |
| RRSP room created for 2027 | $27,000 | $26,164 | $0 | $18,958 |
Every figure is an estimate. The "everything as dividends" column pays no CPP, which is most of its lower total; it also earns no CPP pension and creates no RRSP room. Money left in the company is taxed again when it comes out, so the "total if everything were paid out" row is the fairer long-run comparison. A corporation's yearly costs are not in this table unless you entered them.
What to do next
- Add up what a corporation would cost you each year and enter it above: the T2 return and financial statements, the annual report, separate books and a bank account, payroll or T5 filings.
- Try "Only what I need" with the cash you live on, to see how much could stay in the company and what tax waits on it.
- Think about more than tax: liability, how clients see you, raising money, bringing in a partner, and selling the business one day. When to incorporate walks through them.
- Work mainly for one client? Read the personal services business rules first.
- Talk to your lawyer about shares, directors and the minute book. This is general information, not legal advice.
Want the books, payroll and both returns handled once you incorporate? See the business membership.
Key figures for 2026
The rules and rates behind a sole proprietor versus corporation comparison in the 2026 tax year (returns filed in 2027), in BC and Alberta.
| Figure | Rule or rate | Source, checked |
|---|---|---|
| Sole proprietor | Profit is your own income: 14% to 33% federal plus 5.6% to 20.5% BC or 8% to 15% Alberta, and both halves of CPP | CRA, gov.bc.ca, alberta.ca; 28 Oct 2026 |
| Small business corporate tax | 11% on the first $500,000 of active business income: 9% federal + 2% BC or Alberta | CRA corporation tax rates, gov.bc.ca, alberta.ca; 28 Oct 2026 |
| General corporate tax | Above $500,000, or income that doesn't qualify: 27% in BC (15% + 12%), 23% in Alberta (15% + 8%) | Same pages; 28 Oct 2026 |
| Passive income limit | The $500,000 business limit shrinks once the company's investment income passes $50,000 a year and is nil at $150,000; it also shrinks with taxable capital over $10 million | CRA Guide T4012, chapter 4; 28 Oct 2026 |
| Non-eligible dividends | Grossed up 15%; credits of 9.0301% federal, 1.96% BC and 2.18% Alberta of the taxable amount | CRA T5 guide, gov.bc.ca; 28 Oct 2026. Alberta: Personal Income Tax Act s.21 |
| CPP in 2026 | 5.95% each for employee and employer from $3,500 to $74,600 (max $4,230.45 each), plus CPP2 4% each to $85,000 (max $416 each). Self-employed: both halves, up to $9,292.90. Dividends: none | CRA CPP, CRA CPP2; 28 Oct 2026 |
| EI on your own salary | None where you control more than 40% of the voting shares; a sole proprietor pays none either | CRA EI premiums; 21 Oct 2026 |
| Canada employment amount | $1,501 credit at 14% on salary, not on self-employment income: the $210 difference when everything is taken out as salary | CRA T4032 2026; 21 Oct 2026 |
| RRSP room | 18% of 2026 earned income (self-employment income or salary, not dividends), up to $35,390 for 2027 | CRA RRSP limits; 21 Oct 2026 |
| Lifetime capital gains exemption | $1,275,000 for 2026 on qualified small business corporation shares (not available to a sole proprietor); conditions apply | CRA indexation chart; 28 Oct 2026 |
How it's calculated
The same profit is run two ways with the engine behind our income tax and salary vs dividend calculators.
- Sole proprietor. Your profit is self-employment income on your personal return. CPP is both halves: 11.9% of profit from $3,500 to $74,600 and 8% from $74,600 to $85,000. Half of the base CPP is deducted from income and the other half is a credit; the enhanced part (the first additional CPP and all of CPP2) is deducted. Federal and provincial tax follow the 2026 brackets with the basic personal amounts and the BC tax reduction. Cash in hand is profit less tax and CPP.
- Corporation: everything as salary. The company pays you a salary plus its half of CPP, which together use up the whole profit, so nothing is left to tax in the company. You pay personal tax on the salary (with the Canada employment amount) and your half of CPP.
- Corporation: everything as dividends. The company pays corporate tax (11% to $500,000, then 27% in BC or 23% in Alberta) and pays out the rest as a non-eligible dividend. You pay personal tax on the dividend grossed up 15%, less the federal and provincial dividend tax credits. No CPP.
- Corporation: only what I need. The calculator finds the gross pay, split by your slider between salary and dividends, that leaves exactly the cash you asked for after personal tax and CPP. Profit not paid out stays in the company after corporate tax. It is the same solver as the salary vs dividend calculator, so the two pages agree.
- Estimated additional dividend tax at 2026 rates. This models withdrawal on top of the income entered; it is not a ceiling on future tax. For money left in the company, the personal tax that would apply if it were paid to you as a further non-eligible dividend on top of this year's pay. It is an upper-end estimate: paid out in a lower-income year, the tax is less. "Total if everything were paid out" adds it to this year's figure.
- The difference is the sole proprietor's tax and CPP less the corporation's corporate tax, personal tax and CPP for this year. "Less" means less is paid under the corporation. Any yearly costs you enter are taken off as entered. The result is labelled an estimate of the difference in tax paid this year, before the costs of running a corporation.
Who this is for
- Sole proprietors and contractors in BC or Alberta earning more than they need to live on, who want to see what leaving profit in a company does.
- Tradespeople, consultants, IT contractors and health practitioners deciding whether this is the year. See trades and construction.
- Anyone who was told "incorporate to save tax" and wants the deferral, the CPP effect and the yearly costs laid out side by side.
- Owners already incorporated checking that a corporation still makes sense at their current profit.
What it leaves out
- Passive income and taxable capital rules that shrink the $500,000 small business limit, and the higher tax on investment income inside a company.
- Personal services business rules: an incorporated contractor working like an employee for one client can lose the small business rate and most deductions. Read the guide.
- The lifetime capital gains exemption ($1,275,000 for 2026) on selling qualified small business shares, which a sole proprietor can't use. Capital gains guide.
- Liability protection, financing and credibility, which are reasons to incorporate that have nothing to do with tax.
- RRSP room is shown but not valued: salary and self-employment income create it, dividends don't.
- BC employer health tax, WorkSafeBC and Alberta WCB premiums, eligible dividends and refundable taxes, associated companies, income splitting rules, minimum tax, other personal credits, and the company's deduction of its own costs.
What a corporation costs to run, each year
- Setting up: government filing fees to incorporate, plus legal or filing fees for the articles, share structure and minute book. Extra-provincial registration if you work in both BC and Alberta.
- Every year: a T2 corporate tax return with financial statements, an annual report to the corporate registry, and a separate set of books and business bank account.
- Paying yourself: a payroll account, monthly remittances and a T4 slip for salary; a directors' resolution and a T5 slip for dividends.
- Your own return still: a corporation doesn't replace your T1; it adds a T2.
Enter your own estimate in the calculator to see the difference after these costs. Our pricing is explained on the business membership page; we confirm your price before any work starts. How we handle incorporation.
Incorporation is a legal step as well as a tax one. This page is general information, not legal advice; we work alongside your lawyer on the share structure, directors and corporate records.
Two worked examples for 2026
Example 1: $150,000 of profit in BC
A BC contractor's business earns $150,000 after expenses in 2026. As a sole proprietor the whole $150,000 is her income: income tax is $35,393 ($24,461 federal and $10,932 BC) and CPP, both halves, is $9,293, so she pays $44,686 and keeps $105,314. Nothing is deferred.
Through a corporation that pays everything out as salary, the company pays her $145,354 plus its $4,646 half of CPP, leaving nothing in the company. She pays $35,183 of income tax and $4,646 of CPP: $44,476 in all, $210 less, the Canada employment amount credit. With everything out as dividends, the company pays $16,500 of corporate tax and a $133,500 dividend; she pays $22,995 of personal tax and no CPP: $39,495, which is $5,191 less this year but earns no CPP pension and creates no RRSP room.
If she needs only $80,000 in hand and takes it as salary, the company pays $105,321 of salary and $4,404 of corporate tax on the $40,032 left to tax; she pays $20,675 of personal tax and $4,646 of CPP. Tax and CPP this year total $34,371, $10,315 less than as a sole proprietor. But $35,629 stays in the company, and about $10,388 of personal tax would apply if it came out as a dividend on top of her pay; paid out in full, the total would be $44,759, about $73 more than as a sole proprietor. The gain is timing: she decides when the second layer of tax is paid.
| Line | Sole proprietor | All salary | All dividends | $80,000 as salary |
|---|---|---|---|---|
| Corporate tax | – | $0 | $16,500 | $4,404 |
| Personal income tax | $35,393 | $35,183 | $22,995 | $20,675 |
| CPP, both halves | $9,293 | $9,293 | $0 | $9,293 |
| Tax and CPP this year | $44,686 | $44,476 | $39,495 | $34,371 |
| Cash in hand | $105,314 | $105,524 | $110,505 | $80,000 |
| Left in the company | – | $0 | $0 | $35,629 |
| Estimated additional dividend tax at 2026 rates | – | $0 | $0 | $10,388 |
| Total if everything were paid out | $44,686 | $44,476 | $39,495 | $44,759 |
In Alberta the same $150,000 gives $44,850 as a sole proprietor; $44,640 with everything out as salary; $38,968 with everything out as dividends; and $35,610 taking $80,000 as salary, with $34,390 left in the company and about $9,174 of tax waiting on it. Figures are rounded to the dollar, so parts may not add exactly to the totals.
Example 2: $80,000 of profit in BC
A handyman in Surrey: his business clears $80,000 and he needs all of it. As a sole proprietor he pays $12,450 of income tax and $8,893 of CPP, $21,343 in all. Through a corporation paying everything out as salary he pays $20,887: $456 less, because the salary that fits inside $80,000 is a little lower and so is the CPP on it. Everything out as dividends is $14,986, $6,357 less this year (figures rounded to the dollar), almost all of it the CPP he would not pay, and so no CPP pension earned.
At this profit, with nothing to leave in the company, the yearly cost of a T2 return, an annual report and separate books would usually be more than the $456. The reasons to incorporate here, if any, are liability, how clients see him or plans to grow, not tax.
Try your own numbers in the calculator above, then compare salary and dividends in detail with the salary vs dividend calculator.
Thinking about incorporating?
Book a free 15-minute call by video or phone. We'll look at your profit, what you need to live on, where the business is going and what a corporation would cost you each year, and tell you what we would do.
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Incorporating in 2026, answered
Does incorporating reduce my taxes?
Not on its own. If you take every dollar out of the company as salary, you pay income tax and both halves of CPP on the same amount as a sole proprietor; at $150,000 in this example the difference is about $210. At other profits it also reflects CPP thresholds and the salary left after employer CPP. The difference comes from profit you leave in the company, which is taxed at the small business rate now and taxed again personally when it comes out later. That is a deferral, not a cut, and a corporation adds yearly costs.
What does it cost to run a corporation each year?
Incorporating has government fees plus legal or filing fees. Each year after that a corporation files a T2 corporate return with financial statements and an annual report with the corporate registry, keeps its own books and bank account, and files payroll remittances and T4 slips for salary or a T5 slip for dividends, with a resolution in the minute book. Enter your own estimate of those costs in the calculator; our pricing is explained on the business membership page.
What is tax deferral and when does it help?
Profit left in a BC or Alberta corporation pays 11% corporate tax on the first $500,000 of active business income in 2026, instead of your personal rate, which can be 40% or more. The rest of the tax is paid when you take the money out as salary or dividends. Deferral helps when you earn more than you need to live on and can leave the rest in the company to grow, pay down business debt or smooth out uneven years. If you need every dollar now, there is little to defer.
Should I take salary or dividends once I incorporate?
There is no single right answer. Salary is deducted by the company, builds RRSP room and a CPP pension, but you and the company both pay CPP. Dividends skip CPP and payroll filings but create no RRSP room or CPP pension. Many business owners take some of each. The salary vs dividend calculator shows the tax, CPP and RRSP effect of each mix for the same company.
Why does the all-dividends option show the least tax and CPP?
Because it pays no CPP at all. A sole proprietor pays both halves of CPP, up to $9,292.90 in 2026, and so does an owner who takes salary. Dividends are not pensionable earnings, so nothing goes to CPP. That is money kept this year, but it also means no CPP retirement pension is earned and no RRSP room is created, so it is not a straight tax cut.
What is a personal services business and why does it matter?
If you incorporate but work mainly for one client in a way that looks like employment, the CRA can treat your company as a personal services business. It then loses the small business deduction and most expense deductions and pays a higher federal rate, so incorporating can cost more than staying a sole proprietor. The rules matter most for contractors with a single client; see our personal services business guide.
What does this calculator leave out?
It is a simplified estimate. It leaves out the BC employer health tax, WorkSafeBC and Alberta WCB premiums, the passive income and taxable capital rules that reduce the small business limit, eligible dividends and refundable taxes, associated companies, income splitting rules, minimum tax, other personal credits, the lifetime capital gains exemption on a future sale, liability protection and the tax effect of the corporation's own costs. The small-business corporate rate is 11% in both provinces under these assumptions. Above the small-business limit the general combined rates differ: BC 27%, Alberta 23%.
Is the information I type saved or sent anywhere?
Only if you ask for the full breakdown. The calculator works in your browser, and the summary (the difference this year, tax and CPP both ways, cash in hand and what stays in the company) needs nothing from you. If you add your name and email to open the full breakdown, we save them with the numbers you entered and the results, in our database in Canada, so our team can reply; the privacy policy says how long we keep them and how to ask us to delete them. Never type a SIN or account number.
Sources, checked 28 Oct 2026; the CPP deduction and credit split re-checked 31 Oct 2026
- CRA: corporation tax rates (9% small business, 15% general; BC 2% / 12%, $500,000 limit)
- B.C.: corporate income tax rates and business limits (2% small business, 12% general; page updated 30 Apr 2025)
- Alberta: tax and levy rates (2% small business, 8% general, $500,000 threshold)
- CRA Guide T4012, chapter 4: small business deduction (business limit, passive income $50,000 to $150,000, personal services business)
- CRA: T5 guide, dividend gross-up and tax credit (15% gross-up, 9/13 = 9.0301%)
- B.C.: basic tax credits and dividend tax credit (12% / 1.96% for 2026; page updated 20 Apr 2026)
- CRA: CPP contribution rates, maximums and exemptions and CPP2 rates (2026)
- CRA: the Canada Pension Plan enhancement (checked 31 Oct 2026: self-employed people claim a credit on half of the base CPP and a deduction on the other half; the first additional CPP and all CPP2 are deductible)
- CRA: 2026 tax rates and income brackets, B.C. personal income tax rates, Alberta personal income tax
- CRA: indexation adjustment chart (lifetime capital gains exemption $1,275,000 for 2026)
- CRA: RRSP dollar limits ($35,390 for 2027)