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Business taxation in Canada isn’t one tax. It’s a set of them, and which ones you meet depends on how the business is set up and what it does. A sole proprietor puts the profit on a personal return. A corporation files its own return and pays its own tax. Either can also owe GST/HST once sales pass $30,000, and either owes 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. 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, not a published figure. The dividend tax calculator lets you run the personal half with your own numbers.
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. 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.
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.
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.
Where the numbers come from
Corporate rates are from the Canada Revenue Agency’s corporation tax rates page. The sole proprietorship, corporation and GST/HST small supplier points come from CRA pages on setting up a business and registering for GST/HST, read in September 2026. The dollar figures are estimates from this site’s calculators. This site is not connected to the CRA or any government.
Frequently asked questions
What taxes does a Canadian business pay?
Income tax on profit, GST/HST once taxable revenue passes the small supplier limit, and payroll remittances if it has employees.
How is a sole proprietorship taxed?
The profit goes on the owner's personal T1 return and is taxed at personal rates. CPP on self-employed earnings may also apply.
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.
When do I have to register for GST/HST?
When your taxable revenue is over $30,000 in a single calendar quarter or over the last four calendar quarters, unless you are exempt from registering.
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 lost CPP rights.
- 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
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.