Sole prop vs CCPC net comparison.
Sole prop net
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CCPC net (full draw)
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Your breakdown
Updates live as you type| Line | Sole prop | CCPC, full draw |
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The question incorporation usually gets wrong
Most people ask whether incorporating will lower their tax bill. The sharper question is whether they plan to spend everything they earn or leave some of it invested in the business. This calculator compares two scenarios at the same level of business income: a sole proprietor taxed personally, and a Canadian-controlled private corporation that pays the small business corporate rate and then flows the rest out as dividends, drawn down in full. Run that way, with every dollar pulled out the same year, the comparison is deliberately unflattering to incorporation, because it strips away the one advantage that usually makes it worthwhile.
Two tax bills, side by side
The sole proprietor’s profit is taxed once, at their personal marginal rate. The corporation’s profit is taxed twice: first at the small business rate, which this tool sets at 12.2 percent for a typical federal-plus-provincial combination, and again when the after-tax money is paid out as a non-eligible dividend and taxed in the owner’s hands after the dividend tax credit. Canada’s tax system is built around integration, the principle that money earned through a corporation and fully distributed should face roughly the same total tax as money earned directly. When integration works, full draw-down is close to a wash, and the friction of running a corporation tips the scale back toward the sole prop.
$150,000 of business income, fully drawn
Take $150,000 of business income and a 43 percent personal marginal rate. As a sole proprietor you keep 57 percent, or $85,500. Incorporate and the company pays $18,300 in corporate tax, leaving $131,700 to distribute as dividends, which are then taxed in your hands. After the dividend tax, the net comes to $79,020.
The sole proprietor comes out $6,480 ahead under full draw-down, before you even count the accounting bill. The bars make the gap plain.
When incorporation actually wins: deferral
The advantage this simplified comparison cannot show is tax deferral. If you do not need all the money, the corporation keeps profits taxed at only 12.2 percent and reinvests the larger after-tax sum, while a sole proprietor has already lost 43 percent off the top before investing a cent. That deferral compounds for years and is the real reason high earners incorporate. The break-even depends on how much you can leave inside the company. A practical guide: if you spend essentially everything you earn, incorporation rarely pays once you subtract $1,500 to $3,000 a year in accounting and filing costs. If you can routinely leave a meaningful slice invested, the corporation pulls ahead. Note that Quebec runs its own corporate tax system, so a Quebec CCPC faces a different combined rate than the figure used here.
Frequently asked questions
Does incorporating give me liability protection?
A corporation is a separate legal person, so business debts and lawsuits generally stop at the company rather than reaching your personal assets. That protection is real but not absolute. Banks routinely require a personal guarantee on a small business loan, and you remain personally liable for your own professional negligence and for unremitted payroll and sales tax. Treat the liability shield as one factor, not a guarantee that your house is untouchable.
Salary or dividends once I am incorporated?
Salary creates RRSP contribution room and CPP contributions and is deductible to the company, while dividends skip CPP and carry the dividend tax credit. Many owners blend the two, paying enough salary to maximize RRSP room and fund CPP, then topping up with dividends. The right mix depends on your retirement plan and cash needs, and it is the kind of decision worth modelling separately rather than defaulting to one or the other.