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Small business income tax depends on how you’re set up. A sole proprietor adds business profit to personal income and pays regular tax plus both halves of CPP. A Canadian-controlled private corporation pays a net federal rate of 9% on active business income up to its business limit, which is typically $500,000, and then a provincial rate on top.
Which is taxed lower, a sole proprietorship or a corporation?
Neither, always. The answer turns on what you take out of the business.
A corporation’s low rate applies to profit that stays inside it. The moment you pay yourself a salary or dividend, that money is taxed again in your hands. So a corporation can defer tax when you leave profit in it, but it doesn’t make tax disappear, and the calculators here don’t model what happens when money leaves.
Take $90,000 of profit in Ontario. A sole proprietor owes $16,079.97 in income tax and $9,292.90 in CPP, or $25,372.87 in all, from the self-employed tax calculator. A corporation with $100,000 of active business income owes $11,696 in Ontario for a calendar 2026 year, from the corporate tax calculator. The two figures aren’t comparable, because the second leaves the cash inside the company. That gap is the whole question to put to an accountant.
What are the corporate rates for a small business?
The CRA lists the federal basic rate at 38%, or 28% after the federal abatement, and 9% net for a CCPC claiming the small business deduction. Provinces add their own. Here are combined rates from our data, checked on September 29, 2026.
The basic rate of Part I tax is 38% of your taxable income, 28% after the federal tax abatement.
Corporation tax rates, canada.ca
| Province | Combined, small business | Combined, general |
|---|---|---|
| Ontario (from 2027) | 11.2% | 26.5% |
| Quebec (calendar 2026) | 12.2% | 26.5% |
| British Columbia | 11% | 27% |
| Alberta | 11% | 23% |
| Saskatchewan | 10% | 27% |
To see the federal piece in dollars, take a CCPC with $100,000 of active business income inside the business limit. At the 9% net federal rate that is $9,000, and the province’s share comes on top. The CRA’s table also shows that the business limit isn’t $500,000 everywhere: it lists $600,000 for Saskatchewan and Prince Edward Island and $700,000 for Nova Scotia, so look up your own province.
Two cautions. Ontario cut its small business rate from 3.2% to 2.2% on July 1, 2026, so a calendar 2026 year gets a blend of about 11.7% (our own calculation, not a published figure). And the Quebec and Alberta rows rest on search summaries, not the full pages. Check the provincial page for your year end.
How much tax is that on real profit?
For a calendar 2026 year in Ontario, the calculator gives these results. The last row shows what happens above the limit.
| Active business income | Corporate tax | Average rate |
|---|---|---|
| $100,000 | $11,696 | 11.7% |
| $300,000 | $35,088 | 11.7% |
| $600,000 | $84,980 | 14.2% |
Above the first $500,000 the general rate of 26.5% applies, which is why the average climbs. The limit is also shared between associated companies, and it shrinks if the corporation has large taxable capital or passive investment income. Those cases sit outside the calculator.
Do you have to pay tax during the year?
Yes, and this trips up new owners. Nobody withholds tax from business profit, so you’re the one who sets it aside. A separate savings account for the taxman keeps tax time from hurting. Individuals who owe more than $3,000 for the year, and did so in one of the last two, usually pay instalments on March 15, June 15, September 15 and December 15. On $9,000 of expected tax, the tax instalments calculator shows four payments of $2,250.
Corporation balances and filing dates run on the corporation’s year end, so look those up on the CRA page for your own date. We haven’t listed them here.
When does it make sense to talk to an accountant about incorporating?
Usually when profit starts to outrun what you spend on living. Alex in Regina nets $140,000 from a consulting practice but only needs $80,000 a year to live on. Leaving the rest inside a company defers some tax. If Alex needs every dollar, incorporating adds paperwork, a second tax return and accounting fees for little gain. That’s the trade, and it’s why two owners with the same profit can sensibly choose differently.
What do people get wrong about small business income tax?
- Some incorporate for the rate, then find the personal tax on paying themselves.
- Others forget GST/HST, which is separate and isn’t in these estimates.
- Owners of more than one company miss the shared limit.
- Sales get counted instead of profit. Tax applies to what’s left after allowable expenses.
- Records get thrown out too soon. The CRA wants six years.
Not sure what counts as an expense? Our guide to small business tax deductions in Canada covers the usual ones.
Where this information comes from
Federal corporate rates and the $500,000 limit come from the Canada Revenue Agency‘s corporation tax rates page. Provincial rates come from CRA and provincial pages, with the exceptions noted above. Examples use this site’s calculators with 2026 data checked on September 29, 2026. No government body has reviewed or endorsed what you read here.
Frequently asked questions
What is the federal small business tax rate?
For a Canadian-controlled private corporation claiming the small business deduction, the CRA lists a net federal rate of 9%.
What is the small business limit?
Federally it is typically $500,000 of active business income. Some provinces set their own, such as Saskatchewan at $600,000 in our data.
How much tax does a sole proprietor pay on $90,000 in Ontario?
Income tax of $16,079.97 plus CPP on both halves of $9,292.90, or $25,372.87 in total, by our calculator.
Do I pay tax during the year?
You usually pay quarterly instalments if your net tax owing is over $3,000 this year and was in one of the last two years.
Is a corporation always cheaper in tax?
No. The low rate applies to profit left in the company. Paying yourself from it brings personal tax.
- 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