How to Use the Incorporate vs. Sole Proprietor Calculator

Before You Start

• Have a realistic estimate of your annual business net income (revenue minus business expenses, before paying yourself).
• Know approximately how much you need to withdraw for personal living expenses.
• Understand this is a planning estimate — your CPA will have the full picture including your specific credits and prior-year losses.

Step-by-Step

1. Select your province: Both the provincial income tax rate and the provincial corporate tax rate (small business deduction) vary by province. Alberta and Quebec have notably different combined rates.
2. Enter annual business net income: Enter revenue minus all business expenses — this is the profit before paying yourself. Do not include your salary here if you already subtracted it from revenue.
3. Enter personal living expenses: Enter how much you need to withdraw annually. The remainder can stay inside the corporation and benefit from the lower corporate tax rate on deferral.
4. Select how you would pay yourself if incorporated: Dividends-only avoids CPP but reduces RRSP room. Salary-only provides CPP coverage and RRSP room. Mixed is the common approach — salary to maximize CPP, rest as dividends.
5. Read the verdict and breakdown: The tool shows total tax under each structure, annual savings, and the break-even income point where incorporation overhead (~$4,000/yr) is covered by tax savings.

How to Read the Output

• The "savings" figure is the annual reduction in combined tax burden — corporation tax plus personal tax on what you withdraw.
• The break-even income is the revenue level where tax savings equal typical annual incorporation costs (~$4,000 for accounting and corporate filings). Below this, simplicity of sole proprietorship often wins.
• Keeping money inside the corporation defers tax — you pay corporate rate now (~9–15% SBD rate) and personal tax later when you withdraw. This deferral advantage grows as retained earnings grow.
• RRSP room is only created by salary income. If you pay only dividends, you lose RRSP contribution room for that year.

Common Mistakes to Avoid

• Comparing only corporate tax to personal tax — you must combine both corporate tax and personal tax on withdrawals to get a true comparison.
• Ignoring the ongoing cost of incorporation: annual corporate filings, separate corporate tax returns, accountant fees, and minute book maintenance add $2,000–$5,000/yr.
• Incorporating too early — for most sole proprietors under $80,000–$100,000 net income, the complexity outweighs the tax savings.
• Assuming you can freely split income with family under TOSI rules — the Tax on Split Income rules significantly restrict dividend splitting to family members without active involvement.