Incorporated vs Sole Proprietor Comparison Tool

Compare the tax impact of incorporating vs staying a sole proprietor.

Business Income

Annual Net Business Income — after expenses

Province

Personal Needs

Annual Personal Income Needed — living expenses

How to Pay Yourself — if incorporated

Annual Incorporation Costs

Accounting Fees

Legal & Filing Fees

Other Corp Costs

Based on Tax Savings

Sole Proprietor

Net Business Income{{ incomeStr }}

CPP (both portions)−{{ soleCppStr }}

Federal Income Tax−{{ soleFedStr }}

Provincial Income Tax−{{ soleProvStr }}

Additional Corp Costs$0

Total Tax & Costs{{ soleTotalStr }}

After-Tax Cash{{ soleCashStr }}

Incorporated

Net Business Income{{ incomeStr }}

Your CPP (employee)−{{ incEmpCppStr }}

Corp CPP (employer match)−{{ incEmprCppStr }}

Personal Income Tax−{{ incPersTaxStr }}

Corporate Tax on Retained−{{ incCorpTaxStr }}

Incorporation Costs−{{ incCostsStr }}

Total Tax & Costs{{ incTotalStr }}

After-Tax Cash{{ incCashStr }}

Corporate Tax Deferral

Retained in your corporation at the small business tax rate — invest or withdraw later

Sole Proprietor

✓Simple and inexpensive to set up

✓One personal tax return — no corporate filing

✓Business losses offset personal income

✓Lower accounting costs

✗Unlimited personal liability

✗No tax deferral — all income taxed at your rate

✗Higher CPP — you pay both portions

Incorporated

✓Limited liability — protects personal assets

✓Tax deferral on retained earnings

✓Income splitting with family (dividends)

✓Lifetime capital gains exemption on sale

✗Higher setup and ongoing costs

✗Two tax returns — personal and corporate

✗More complex record-keeping requirements

Note: This calculator provides a simplified comparison using 2025 small business tax rates and non-eligible dividends. Actual results depend on your full financial picture, including other income, RRSP contributions, tax credits, and provincial-specific rules. The optimal salary/dividend mix and decision to incorporate should be made with a qualified accountant.

Should You Incorporate Your Business?

As a sole proprietor, all business income is taxed on your personal return at your marginal rate, and you pay both portions of CPP (11.9%). When you incorporate, your corporation pays the small business tax rate (9-12.3% combined) on profits, and you only pay personal tax on what you actually withdraw as salary or dividends.

The main advantage of incorporating is tax deferral — money left in the corporation is taxed at a much lower rate, freeing up more cash to reinvest. However, incorporation comes with higher accounting costs, more complex filing requirements, and additional legal obligations. It generally makes sense when your business earns significantly more than you need for living expenses.

Disclaimer: This calculator provides simplified estimates using 2025 tax rates. It does not account for the Lifetime Capital Gains Exemption, income splitting rules (TOSI), provincial health premiums, RRSP contributions, or other deductions that may affect your comparison. The decision to incorporate involves legal, liability, and long-term planning factors beyond taxes. Consult a qualified accountant and lawyer before making this decision.