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Business taxation in Canada is a set of taxes, and which ones apply depends on how the business is set up. A sole proprietor reports profit on a personal T1 return, a corporation files its own T2, and either may owe GST/HST once taxable sales pass $30,000 and payroll remittances once there are employees.
How is a sole proprietorship taxed?
There’s no separate tax bill. The CRA describes a sole proprietorship as an unincorporated business owned by one person, with no legal status apart from the owner. You report the business income on your own T1 return, using form T2125 for the statement of business activities. Your profit is taxed at personal rates, together with any other income you have.
You may also have to pay CPP on your self-employed earnings and make tax instalments. Our self-employed tax calculator gives you a quick estimate of both.
How is a corporation taxed?
A corporation is its own taxpayer. It has to file a T2 return no later than six months after the end of each tax year, even when it owes nothing, and it usually pays tax in monthly or quarterly instalments. The rates are 15% federal for most companies, 9% for a small CCPC on its first $500,000, plus a provincial rate, all set out on the CRA’s corporation tax rates page. The corporate tax calculator adds them for you, and our page on corp tax explains the steps.
One thing catches new owners out. Getting the profit out of the company is a second event, with its own tax.
How does business taxation compare on $100,000 of profit in Ontario?
Nobody can answer that in general, but here are the numbers from our calculators for one case. The business earns $100,000 of profit, the owner has no other income, and the company pays out everything left as dividends the same year. Both are estimates for Ontario in 2026 and they ignore credits and deductions.
| Sole proprietor | Corporation, all paid out | |
|---|---|---|
| Corporate tax | none | $11,696 |
| Personal income tax | $19,045 | $9,684 |
| CPP on self-employed earnings | $9,293 | none |
| Left over | $71,662 | $78,620 |
The corporation looks better by about $7,000, but be careful reading that. The CPP the sole proprietor pays buys pension rights, and dividends don’t. A company also costs money to set up and keep, and the Ontario corporate rate in that column is a 2026 blend we worked out by the days each rate applied, since the CRA says Ontario cut its small business rate on July 1, 2026. The dividend tax calculator lets you run the personal half with your own numbers.
The gap itself checks out. The sole proprietor keeps $100,000 minus $19,045 minus $9,293, which is $71,662. The corporation leaves $100,000 minus $11,696, or $88,304, and after $9,684 of personal tax on the dividends that’s $78,620.
When do you have to charge GST/HST?
You’re a small supplier, and don’t have to register, while your taxable revenue stays at $30,000 or less in any single calendar quarter and over the last four quarters. Go over and you must register and start charging. The CRA says to register within 29 days of the supply that took you over, and its page on when to register for and start charging the GST/HST has worked examples. Use the GST/HST calculator to split a price into tax and net amounts.
Some businesses have to register at any size. The CRA names taxi and commercial ride-sharing services.
Here’s how it plays out. Sofia in Moncton starts selling handmade furniture and has a good spring, with $34,000 of sales in one quarter. She doesn’t wait until year end. The sale that pushed her past $30,000 is the one that starts the clock, and the 29 days run from there.
What changes when you hire someone?
You become responsible for deducting and remitting income tax, CPP and EI from the pay. Directors of a corporation can be personally liable if those amounts aren’t remitted, according to the CRA. The payroll remittance calculator shows the amounts. Ontario businesses can also read our page on business tax in Ontario.
Where should a new owner start?
Pick the structure first, because it decides which return you file. Then keep your sales and expenses in one place from day one, watch the $30,000 line if you sell anything taxable, and write down the dates you’ll need at tax time, including instalments if you expect to owe. None of that needs special software. A spreadsheet and a calendar reminder go a long way.
What does this page not cover?
Plenty. We haven’t covered property tax, industry rules, provincial payroll levies or how to claim expenses. We haven’t checked the small business limit for associated companies either, which can cut the low rate for a group. And the sole proprietor versus corporation table is one example, not advice to incorporate. If the choice is real, an accountant can model your year properly.
The sources behind this page
Corporate rates are from the Canada Revenue Agency‘s corporation tax rates page, read in November 2026. The sole proprietorship, corporation and GST/HST small supplier points come from CRA pages on setting up a business and registering for GST/HST. The GST/HST page was read again in November 2026. The dollar figures are estimates from this site’s calculators. No level of government runs or endorses this site.
Frequently asked questions
What taxes does a Canadian business pay?
Income tax on profit, GST/HST once taxable revenue passes the $30,000 small supplier limit, and payroll remittances if it has employees. A sole proprietor reports profit on a personal return, while a corporation files a T2 and pays its own tax. Property tax and industry levies can apply too but are outside this page.
How is a sole proprietorship taxed?
The profit goes on the owner’s personal T1 return, using Form T2125, and is taxed at personal rates together with any other income. CPP on self-employed earnings may also apply, and the owner may need to pay tax by instalments because nothing is withheld during the year.
When must a corporation file a T2?
No later than six months after the end of its tax year, even if it owes no tax. A company with a December 31 year end files by June 30. The balance of tax is due earlier, two or three months after year end, so the filing date is not the payment date.
Is incorporating always cheaper?
No. Our Ontario example on $100,000 favours the corporation by about $7,000 in cash, but it ignores set-up costs, credits and the CPP pension rights a sole proprietor earns. Dividends do not build CPP. Ask an accountant to model your own numbers before you decide.
When must a business register for GST/HST?
When taxable revenue passes $30,000 in a single calendar quarter or over four consecutive quarters, the business stops being a small supplier. The CRA says to register within 29 days of the effective date. Taxi and ride-sharing drivers must register at any size.
- 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