Sole proprietor vs corporation
Should you incorporate? Compare 4 scenarios side by side.
Estimates only — how we calculate
Your Business
Example figures: replace them with your own.
Net business income: $130,000
Sole proprietor
Corporation — salary only
Corporation — 60% salary, 40% dividends
Corporation — 30% salary, rest kept in the company
Before personal tax on later withdrawalKept in the company each year: $78,488. It is taxed again when you take it out.
Incorporation may help — run the numbers with a CPA
The tax savings depend on your salary/dividend split and personal situation. Consult a CPA.
Key Differences
| Factor | Sole proprietor | Corporation |
|---|---|---|
| Setup cost | Little or none | Incorporation and legal fees: ask for a quote |
| Annual maintenance | Your personal return only | T2 return, bookkeeping, annual filing: ask an accountant |
| Tax rate on business income | 43.41% on your next dollar (Ontario) | 11.7% small business rate (Ontario), on income up to $500,000 |
| Liability | Unlimited personal | Limited to corp |
| Income splitting | Limited | Dividends to family |
| Complexity | Simple | Separate tax return, payroll |
2026 rate blends 3.2% (Jan–Jun) and 2.2% (Jul–Dec). Ontario provincial small business rate, about 2.7% for a calendar-year corporation.
Not included: the cost of running a corporation (separate T2 corporate return, bookkeeping and accountant fees, annual provincial filings, payroll or dividend slips). Ask an accountant for a quote.
Warning for consultants: if you work like an employee for one client, your corporation may be a personal services business. It loses the small business rate and most expense deductions. A corporation with more than five full-time employees is not affected. Check with a CPA before you incorporate. CRA T2 guide: personal services business
This is a simplified comparison. Incorporating involves legal, accounting and tax complexity. Consult a CPA and a lawyer.