Updated Checked by the Tax-Services.ca editorial team How we check
Business income tax in Canada depends on how the business is set up. A sole proprietor or partner reports the profit on a personal return and pays the same graduated rates as an employee. A corporation files its own T2 return and pays a flat rate on its profit. Which is cheaper depends on how much profit you leave inside.
How is business income taxed if you’re a sole proprietor?
There’s no separate tax bill for the business. You total your revenue, subtract allowable expenses on form T2125, and the profit lands on your T1 return next to any other income. The CRA’s page on sole proprietorships and partnerships sends you to T2125 for exactly this. If you’re the owner, you also pay both halves of CPP, since there’s no employer to split it with.
Here’s what that looks like in Ontario for 2026. On $80,000 of net business income, our self-employed tax calculator shows $13,233.57 of income tax and $8,892.90 of CPP, so $22,126 in all and $57,873.53 left. Move the profit to $100,000 and the total becomes $28,338. Two things are missing from that figure: EI and GST/HST. Treat the number as a floor.
Partners work the same way, each reporting their share of the partnership’s profit on their own return. Nobody sends the partnership’s profit to the CRA as one lump.
What does a corporation pay instead?
A corporation is taxed as its own person. The federal general rate is 15%. A Canadian-controlled private corporation pays 9% federally on its first $500,000 of active business income, once the small business deduction is counted. Provinces add their own rate on top, and the CRA’s corporation tax rates page lists them province by province. A few provinces use a higher provincial limit than $500,000, so don’t assume Ontario’s setup holds everywhere.
| Item (Ontario, corporation) | Rate |
|---|---|
| Federal general rate | 15% |
| Federal rate on small business income (first $500,000) | 9% |
| Ontario general rate | 11.5% |
| Combined general rate | 26.5% |
| Combined small business rate, calendar 2026 | about 11.7% (blend) |
Treat that last row with care. Ontario cut its small business rate from 3.2% to 2.2% from July 1, 2026, so a corporation with a calendar year has a blend of the two. Our calculator works it out by days and no official page gives the blended figure, so it’s an estimate. A company with another year end will land somewhere else.
How much tax does a small corporation pay on $100,000?
Put $100,000 of active business profit through the corporate tax calculator for an Ontario CCPC and it shows $9,000 federal and $2,696 provincial. The total is $11,696, an average of 11.7%, which leaves $88,304 in the company.
That looks far better than $19,044.97 of personal income tax on the same profit. But it’s only half the picture. The money is still in the corporation. When you pay it out to yourself as salary or dividends, you’re taxed again as a person, and the calculator leaves that step out. The dividend tax calculator shows what that second layer costs.
So a corporation makes the most sense when you don’t need to spend all the profit. If you do, the gap narrows quickly. Picture Dana, a contractor in Mississauga who clears $100,000 but needs every dollar for the mortgage and groceries. She’d pull it all out, pay personal tax on it anyway, and carry the extra paperwork of a company, and her take-home might barely budge.
What are the filing and payment dates for business income tax?
Sole proprietors follow the personal calendar. The 2025 return was due June 15, 2026 if you had business income, but tax owing was due April 30, 2026. The 2026 dates aren’t on a CRA page yet.
A corporation files its T2 within six months of its year end. The tax itself is generally due two months after year end, or three months for a CCPC that claims the small business deduction and meets the CRA’s conditions. So a December 31 year end means a June 30 filing date and a February or March payment date. Miss the gap between payment and filing and you’ll pay interest on a balance you haven’t sent.
Mistakes that raise a business income tax bill
The first is paying yourself from the business without a plan. Owners mix personal spending with company money, then can’t say what was salary and what was a loan.
The second is forgetting instalments. If you owe more than $3,000 for the year and also did in 2025 or 2024, the CRA expects payments on March 15, June 15, September 15 and December 15. The tax instalments calculator splits your estimate into four.
The third is assuming the small business rate is automatic. Large taxable capital, passive investment income and associated companies sharing one $500,000 limit can all raise the rate, and our calculator doesn’t model them.
Whether to incorporate isn’t something a calculator can settle. Spend a paid hour with an accountant before you decide, because the answer turns on your spending, your other income and your plans for the profit.
Which questions should you answer before choosing a structure?
Four, in this order. How much of the profit will you actually spend each year? Do you have other income, such as a spouse’s pension or a job, that changes your personal rate? Do you plan to sell the business or hold investments inside it? And are you ready for a yearly T2, separate books and a payroll account if you pay yourself a salary?
If most of the answers are “I’ll spend it all” and “keep it simple”, staying a sole proprietor is a perfectly respectable choice. Plenty of people run a good business that way for decades.
How we checked the figures
Corporate rates come from the Canada Revenue Agency‘s pages on corporation tax rates, the Ontario provincial tax page and the “what’s new” notice for corporations. Filing and balance-due rules come from the CRA’s guidance for T2 returns. Personal tax examples come from our calculators, which use 2026 federal and Ontario figures.
Frequently asked questions
How is business income taxed in Canada?
A sole proprietor adds the profit to a personal return. A corporation files a T2 and pays tax on its own profit at corporate rates.
What is the federal small business rate?
9% on the first $500,000 of active business income for a Canadian-controlled private corporation. The limit is shared among associated companies.
When is corporate tax due?
Generally two months after the year end, or three months for a CCPC claiming the small business deduction if it meets the CRA conditions. The T2 return is due six months after year end.
Does a corporation always pay less tax?
Not always. Tax is lower inside the company, but paying money out to yourself as salary or dividends is taxed again.
Do I pay CPP on my own business profit?
Yes. A self-employed person pays both the employee and employer parts of CPP.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST