Incorporation
Incorporating does not reduce tax on money you spend — it defers tax on money you leave inside the company. This compares both structures at your profit level, including the salary-dividend mix and the annual cost of keeping a corporation alive.
- Corporate vs personal
- Salary / dividend split
- Break-even income
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Sole proprietor against a corporation
The incorporated structure, line by line
| Profit before compensation | $185,000 |
|---|---|
| Salary to youDeductible to the company, taxed to you, and it creates RRSP room | ($57,000) |
| Corporate taxable income | $128,000 |
| Small-business rate on $128,00012.2% on the first $500,000 | $15,616 |
| After-tax corporate cash | $112,384 |
| Dividend paid to youNon-eligible, grossed up 15% with a dividend tax credit | ($38,000) |
| Retained in the company | $74,384 |
What reaches your bank account
- Your after-tax cash$73,086
- Corporate tax$15,616
- Personal tax and CPP$21,914
- Retained in the company$74,384
- Professional fees$2,400
| Net salary after tax and CPP | $42,760 |
|---|---|
| Dividend received | $38,000 |
| Tax on the dividend | ($7,673) |
| Personal cash in hand | $73,086 |
| Sole proprietor cash in handBut with nothing left inside a company | $120,997 |
Where the structures cross over
- Unincorporated
- Incorporated
| $80,000 of profit$22,909 unincorporated against $22,448 incorporated | Incorporate: save $460 |
|---|---|
| $120,000 of profit$35,391 unincorporated against $32,000 incorporated | Incorporate: save $3,391 |
| $185,000 of profit$64,003 unincorporated against $39,930 incorporated | Incorporate: save $24,073 |
| $260,000 of profit$100,659 unincorporated against $49,080 incorporated | Incorporate: save $51,579 |
| $400,000 of profit$175,484 unincorporated against $66,160 incorporated | Incorporate: save $109,324 |
Salary or dividend
| Salary creates RRSP room$10,260 of new room at your current mix | 18% of salary |
|---|---|
| Salary builds CPPAn 11.9% cost, and a lifetime indexed pension in return | Both halves |
| Dividends skip payroll taxCheaper now, but no RRSP room and no CPP credit | No CPP, no EI |
| IntegrationCanadian rules aim to make both routes cost the same; the differences are RRSP room, CPP and timing | Roughly neutral |
Corporate tax combines the federal small-business rate of 9.0% with your province’s rate of 3.2% on the first $500,000 of active business income, and the general rates of 15.0% and 11.5% above it.
Dividends are treated as non-eligible: grossed up 15.0%, then reduced by the federal credit of 9.0% of the grossed-up amount and an approximate provincial credit. Provincial dividend credits change frequently and are modelled as a single rate, so treat the dividend figures as close rather than exact.
The deferral estimate applies the gap between your personal marginal rate and the small-business rate to the balance left inside the company. It is a deferral, not a saving: withdrawing that money later triggers dividend tax.
Salary is assumed to carry self-employed CPP, because a sole shareholder pays both the employee and employer halves. EI is not payable on a controlling shareholder’s salary.
These results are illustrative estimates based on published 2026 rates and typical lender rules. They are not financial, tax, or legal advice, and they are not a mortgage or credit approval. See the methodology and disclaimer.
Double CPP, GST/HST registration, and quarterly instalments.
How much of every $1,000 invoice belongs to the CRA, not to you.
Take-home pay with federal and provincial tax, CPP, EI, and RRSP impact.
Contribution room since 2009, wrapper comparison, and the FHSA deduction.