Sole proprietorship vs incorporation: after-tax income comparator

Sole proprietor. Profit is taxed as personal income: 2026 federal brackets (14% to $58,523 · 20.5% to $117,045 · 26% to $181,440 · 29% to $258,482 · 33% above) plus 2026 Alberta brackets (8% to $61,200 · 10% to $154,259 · 12% to $185,111 · 13% to $246,813 · 14% to $370,220 · 15% above), minus the federal and Alberta basic personal amounts. CPP at self-employed rates: 11.9% of earnings from $3,500 to $74,600, plus 8% from $74,600 to $85,000.

Incorporated. Profit taxed at the combined small-business rate: 9% federal plus 2.0% Alberta, for 11.0% combined. The after-tax amount is paid out as non-eligible dividends: 15% gross-up, then personal tax at the rates above, minus the federal dividend tax credit (9.0301% of the grossed-up dividend) and the Alberta dividend tax credit (2.18% of the taxable amount of the dividend).

Assumes: all profit is withdrawn in the year; no salary/dividend mix is modelled; full basic personal amounts (ignores high-income phase-outs); no other income or deductions; profit under the $500,000 Alberta business limit; the Alberta 2.0% small-business rate applies for the whole year, with no mid-year rate change built in.

Sources: CRA 2026 federal brackets and basic personal amount; Government of Alberta 2026 personal income tax brackets and basic personal amount ($22,769); Government of Alberta corporate income tax rates and business limit; CRA 2026 CPP/YMPE/YAMPE figures; CRA dividend gross-up and federal dividend tax credit rates; Alberta dividend tax credit rate (2.18%, TaxTips.ca 2026 non-eligible dividend table).