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 British Columbia brackets (5.60% to $50,363 · 7.70% to $100,728 · 10.50% to $115,648 · 12.29% to $140,430 · 14.70% to $190,405 · 16.80% to $265,545 · 20.50% above), minus the federal and B.C. 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% British Columbia, 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 B.C. dividend tax credit (1.96% 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Assumes: all profit is withdrawn in the year; no salary/dividend mix is modelled; full basic personal amounts (ignores high-income phase-outs); no other income or deductions; profit under the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 B.C. business limit; the B.C. 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 British Columbia 2026 personal income tax brackets; Government of British Columbia 2026 basic tax credits (basic personal amount $13,216, dividend tax credit); Government of British Columbia corporate income tax rates and business limits; CRA 2026 CPP/YMPE/YAMPE figures; CRA dividend gross-up and federal dividend tax credit rates.