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The main tax advantage of incorporating in Canada is a low rate on the first $500,000 of active business profit for a Canadian-controlled private corporation (CCPC). Federally that rate is 9%, against 15% for other corporate income. In Ontario, the combined rate for a calendar 2026 year comes to about 11.7% by our calculator, and the profit stays in the company until you take it out. That deferral is the real prize, and it isn’t free money.
Whether it pays off depends on how much you need to spend personally each year. One worked example makes that clear.
What corporate tax rates apply in 2026?
| Item | Rate |
|---|---|
| Federal, general corporate rate | 15% |
| Federal, small business rate on the first $500,000 (CCPCs) | 9% |
| Ontario general rate | 11.5% |
| Ontario small business rate | 3.2% cut to 2.2% from 1 July 2026 |
| Ontario combined small business rate, calendar 2026 | About 11.7% (a blend we derived, not a published rate) |
| Ontario combined small business rate from 2027 | 11.2%, if the cut stands |
| Ontario combined general rate | 26.5% |
The CRA’s corporation tax rates page lists the federal 15% and 9% rates and Ontario’s 3.2% and 11.5%, and it also confirms the $500,000 business limit. The 2.2% rate comes from Ontario’s own 2026 budget, which sets the cut for 1 July 2026.
The 11.7% blend deserves a warning. It’s the average of two half-years, 12.2% before July and 11.2% after. A corporation with a year end other than 31 December gets a different mix, so ask the person preparing your return for the real figure.
How much can you keep in the company?
Take Priya, a freelance web developer in Ottawa. Her Ontario business earns $100,000 of profit. As a sole proprietor, the self-employed tax calculator shows $19,044.97 of income tax and $9,292.90 of CPP, so she keeps $71,662.13.
Through a company, the corporate tax calculator shows $11,696 of corporate tax on the same profit, leaving $88,304 inside the company. That’s $16,642 more than she’d hold personally. But it’s the company’s money until it’s paid out, and once she takes it, a second layer of tax arrives at her personal rate. The gap only pays off on money left alone for some time.
Pay it all out as a non-eligible dividend and the dividend tax calculator shows $9,684.10 of personal tax on $88,304 with no other income. Total tax is $21,380.10, and she ends up with $78,619.90, about $6,958 more than as a sole proprietor.
Sounds great. Now the fine print, and there’s plenty of it.
What does that comparison leave out?
It ignores what a bookkeeper and an accountant will cost each year, and that figure depends entirely on the firm and the size of your files. It assumes one owner, no salary and no other income. Dividends aren’t wages, so the sole proprietor’s $9,292.90 of CPP doesn’t have an equal on the dividend side, and that affects what you build toward at retirement. It also skips RRSP room, which depends on earned income, so read the CRA’s rules before you count on it.
And the calculators leave out the phase-out for large taxable capital, and they handle passive income and shared limits between associated corporations only through optional boxes. The CRA’s T2 guide says the $500,000 limit is shared among associated CCPCs. It also says the limit shrinks when a corporation and its associated companies earn between $50,000 and $150,000 of passive investment income, as set out in the T2 corporation income tax guide. If your company holds a lot of savings, the federal low rate can disappear. Ontario’s version of the limit isn’t subject to that passive income reduction, per the CRA’s page on Ontario’s small business deduction.
Plus quirks. Only CCPCs qualify for the small business rate, and Quebec has its own rules, including a paid hours test we don’t model.
When does incorporating help most?
When you can leave money in the company. Suppose Priya only needs $30,000 a year for her household. Take that as a dividend and the personal tax is $356.03, and $58,304 of the profit stays in the company, taxed once at the small business rate. The gap between the low corporate rate and her personal rate is what she defers, and it only works on money that stays put.
When you need all of it personally, the gain shrinks fast, and the added paperwork stays. Some people also want the liability separation a corporation offers, though that’s a legal question and not a tax one. Ask a lawyer.
What about salary instead of dividends? That works differently, with source deductions. The payroll remittance calculator shows what a company sends the CRA on $3,000 gross per pay period in Ontario: $961.03.
What does a corporation cost to keep running?
Money, and time. The CRA says every corporation has to file a T2 return for each tax year, even an inactive one and even when no tax is payable. The return is due six months after the year end, and for most corporations the tax itself is due two months after year end, or three months for eligible CCPCs claiming the small business deduction. Those dates come from the CRA’s T2 guide on who must file.
So a corporation means a separate bank account, separate books and a yearly return, whether it earned $5,000 or $500,000. If your profit is modest and you’d spend nearly all of it, those chores can eat the saving. Run your own numbers in the calculators above, then add what an accountant quotes you, and see whether a few thousand bucks of deferral is still there.
The sources behind this page
Federal corporate rates come from the CRA‘s corporation tax rates page, last updated 30 May 2025, and its notes on the small business deduction. Provincial rates and the Ontario cut come from the CRA’s Ontario pages and Ontario’s 2026 budget, and the 2026 blend is our own estimate. Personal tax and CPP figures come from our 2026 federal and Ontario data. Future rates, including 2027 for other provinces, can change, so treat them as provisional. This site isn’t linked to the CRA, any government or any accounting firm.
Frequently asked questions
What is the small business tax rate in Canada?
For a Canadian-controlled private corporation the federal net rate is 9% on the first $500,000 of active business income. Provincial rates come on top.
What is the combined small business rate in Ontario for 2026?
About 11.7% for a calendar year, but that's a blend we derived because Ontario cut its rate on 1 July 2026. It's 11.2% from 2027 if the cut stands.
Does incorporating always save tax?
No. It works best when you leave part of the profit in the company. If you need all of it personally, the saving shrinks and your costs go up.
Can any corporation use the small business rate?
No, only a Canadian-controlled private corporation. The $500,000 limit is also shared among associated corporations.
Do dividends build CPP?
We couldn't confirm the details here. Dividends aren't earned pay, so check the CRA and Service Canada rules before you plan retirement income around them.
- 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