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Homeโ€บCanadaโ€บIncorporation Calculator

Incorporation Calculator Canada 2025

Compare sole proprietorship vs corporation, calculate tax deferral on retained earnings, and find the optimal salary vs dividend mix for your extraction strategy.

$
Annual net business income (revenue minus business expenses)
Province where you operate and file taxes
$
How much you need to live on annually (salary from corp)
$
Passive income > $50K reduces SBD limit ($5 per $1 over $50K)
โ€”
Estimates only. Incorporation decisions involve legal, tax, and business factors โ€” consult a CPA and lawyer.

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How to Use This Calculator

Tab "Incorporate vs Sole Prop"

Enter your net business income, select your province, and specify how much you need for personal expenses. The calculator compares total tax as a sole proprietor (personal tax + self-employed CPP) against the corporate path (corporate tax + personal tax on salary extraction). It shows annual savings, compliance costs, and retained earnings.

Tab "Tax Deferral"

Enter your business income, the amount kept in the corp, expected investment return, and time horizon. See how the tax deferral (personal rate minus corporate rate) compounds over time โ€” comparing corporate investment growth (taxed at ~50% on passive income) vs personal investment growth (taxed at your marginal rate).

Tab "Extraction Strategy"

Enter your corporate income, desired personal income, and province. Compare three extraction methods: all salary, all eligible dividends, and optimal salary + dividend mix. See corporate tax, personal tax, CPP contributions, RRSP room generated, and net amount in your pocket for each strategy.

The Formulas

Corporate Small Business Deduction (SBD) rates โ€” combined federal + provincial (2025):

ProvinceSBD RateGeneral Rate
Ontario12.2%26.5%
British Columbia11.0%27.0%
Alberta11.0%23.0%
Saskatchewan11.0%27.0%
Manitoba11.0%27.0%
Quebec12.2%26.5%
New Brunswick11.5%29.0%
Nova Scotia11.0%29.0%
PEI11.0%31.0%
Newfoundland12.0%30.0%

Integration principle:
Corporate tax + personal tax on dividends โ‰ˆ personal tax on direct income
Eligible dividend gross-up: 38%. Federal DTC: ~15%. Provincial DTC: varies.

SBD clawback:
Passive income > $50K โ†’ SBD limit reduced by $5 per $1 over $50K
At $150K passive income โ†’ SBD fully eliminated

CPP 2025:
Max pensionable earnings: $71,300
Employee rate: 5.95% (max $4,034)
Self-employed: both portions = 11.9%

Example

Sarah โ€” IT Consultant in Ontario, $200K Net Business Income

Sarah earns $200,000 net from consulting. She needs $80,000 for personal expenses. Should she incorporate?

Net business income$200,000
Personal expenses needed$80,000

As Sole Proprietor:

Personal income tax (federal + ON)~$52,000
CPP (self-employed, both portions)~$8,068
Total tax~$60,068

As Corporation:

Salary (personal expenses)$80,000
Personal tax on salary~$15,400
CPP (employee + employer)~$9,100
Corporate tax on $120K (12.2%)~$14,640
Total tax + compliance~$42,640
Annual savings~$17,400
Retained in corp for investment~$105,360

Frequently Asked Questions

Federal incorporation costs about $200 online through Corporations Canada, or $250-$500 provincially. However, ongoing annual costs are more significant: corporate tax return preparation ($1,000-$2,000), bookkeeping ($500-$1,500), annual filings ($20-$50), and potentially legal fees. Total annual compliance costs typically range from $2,000 to $5,000 depending on complexity.
Eligible dividends are paid from income taxed at the general corporate rate (about 26-31%) and receive a 38% gross-up with a higher dividend tax credit. Non-eligible (or "ordinary") dividends are paid from income taxed at the small business rate (about 11-12.2%) and receive a 15% gross-up with a lower tax credit. The distinction ensures the integration principle works for both tax rates. Most CCPC small business dividends are non-eligible.
Since the Tax on Split Income (TOSI) rules introduced in 2018, income splitting with family members through a corporation is heavily restricted. Dividends paid to a spouse or adult children who don't meaningfully contribute to the business are subject to the top marginal tax rate. However, paying a reasonable salary to a spouse who performs legitimate work for the business is still allowed and can reduce overall family tax.
Yes โ€” incorporating can give you access to the Lifetime Capital Gains Exemption (LCGE) of $1,016,836 (2025) on the sale of qualifying small business corporation shares. This exemption is not available to sole proprietors selling their business assets. To qualify, the shares must meet specific tests: the corporation must be a CCPC, at least 90% of assets must be used in active business, and you must have held the shares for at least 24 months.
Incorporation usually isn't worth it if: (1) your net business income is under $50,000-$60,000 โ€” the compliance costs eat up tax savings; (2) you need all the income personally โ€” no deferral benefit; (3) you have significant personal tax deductions (RRSP, childcare, etc.) that reduce your effective rate below the corporate rate; (4) your business has losses โ€” personal losses offset other income, corporate losses are trapped in the corp.

Related Calculators

๐Ÿ’ผ Self-Employed Tax Calculator
Calculate your total tax as a sole proprietor including CPP.
๐Ÿงฎ Income Tax Calculator
Federal + provincial personal income tax for all provinces.
๐Ÿ’ฐ Dividend Tax Calculator
Eligible and non-eligible dividend tax with gross-up and DTC.
๐Ÿ“Š CPP Calculator
CPP contributions and estimated retirement benefits.
๐Ÿงพ GST/HST Calculator
Calculate GST/HST collected and input tax credits.

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