How it's calculated
The calculator works out what the same year of work leaves you with in three ways, using 2026 rates for the province you choose.
1. Employee. Salary less federal and provincial income tax, CPP (or QPP), CPP2, EI and, in Quebec, QPIP, worked out with the same payroll formulas as our Canada income tax calculator.
2. Sole proprietor. Revenue is your rate × billable hours (or days), less business expenses. On that net income you pay both halves of CPP: 5.95% twice over, up to $8,460.90, plus CPP2 up to $832.Canada Revenue Agency In Quebec, QPP replaces CPP (self-employed maximum $8,958.60) and QPIP adds 0.764%. There is no EI.
The Income Tax Act splits the CPP you pay. Half of the base contribution and all of the enhanced (first and second additional) contributions are deducted from income; the other half of the base earns the same 14% federal credit an employee gets.Justice Laws Website Income tax then uses the federal and provincial brackets and credits, without the Canada employment amount, which is only for employees.
3. Incorporated. Your corporation earns the revenue, deducts the expenses and pays corporate tax: 9% federal on the first $500,000 of profit and 15% above, plus the provincial rate.Canada Revenue Agency What is left is paid to you as a non-eligible dividend. You pay personal tax on the dividend grossed up by 15%, less the federal dividend tax credit (9/13 of the gross-up) and the provincial one.Justice Laws Website
Breakeven rate. The calculator then searches for the lowest hourly (or daily) rate at which each contractor route takes home as much as the employee, to the cent.
Corporate rates and dividend credits for 2026
| Province | Small business rate | Business limit | General rate | Dividend credit (non-eligible) |
|---|---|---|---|---|
| Ontario | 3.2% to June 30, then 2.2% | $500,000 | 11.5% | 2.986% of the grossed-up dividend |
| Quebec | 3.2%, only with 5,500 paid hours | $500,000 | 11.5% | 3.42% of the grossed-up dividend |
| Alberta | 2% | $500,000 | 8% | under review |
| British Columbia | 2% | $500,000 | 12% | under review |
| Nova Scotia | 1.5% | $700,000 | 14% | under review |
Ontario cut its small business rate on July 1, 2026, and the CRA prorates a rate change by the days each rate applies, so a corporation with a calendar 2026 year pays a blended rate of about 2.70%. Quebec's lower rate of 2.2% only starts with taxation years that begin after April 29, 2026.Ministère des Finances du Québec Ontario's dividend credit falls to 1.9863% in 2027.Ontario Ministry of Finance
Under review: the other provinces have not yet published their 2026 dividend tax credit rates, so the calculator shows no incorporated figure for them rather than reuse last year's.
Worked example
| Line | Employee | Sole proprietor | Incorporated |
|---|---|---|---|
| Salary or revenue | $100,000.00 | $120,000.00 | $120,000.00 |
| Business expenses | $0.00 | $5,000.00 | $5,000.00 |
| Corporate income tax | $0.00 | $0.00 | $13,450.27 |
| CPP and CPP2 | $4,646.45 | $9,292.90 | $0.00 |
| EI | $1,123.07 | $0.00 | $0.00 |
| Federal income tax | $13,301.60 | $15,791.44 | $7,287.52 |
| Provincial income tax | $6,722.19 | $7,962.41 | $5,899.85 |
| Take-home | $74,206.69 | $81,953.25 | $88,362.36 |
An Ontario employee on $100,000 takes home $74,207. Billing $75 an hour for 1,600 hours brings in $120,000; after $5,000 of expenses a sole proprietor pays $8,460.90 of CPP and $832 of CPP2, deducts $5,773.45 of it and keeps $81,953.
Through a corporation, the $115,000 profit pays $13,450.27 of corporate tax, and the $101,549.73 dividend leaves $88,362 after personal tax. To match the employee you would need $67.91 an hour as a sole proprietor, or $61.72 incorporated.
Assumptions and limitations
- What an employee gets on top of pay is not counted. EI coverage, paid vacation and holidays, health benefits and an employer pension are worth money; a contract rate usually needs to be higher than the breakeven to cover them.
- One calendar year, one source of income. The contract is your only income, the corporation's year is the calendar year, and you have no other credits or deductions beyond the basic personal amount.
- All profit is paid out as non-eligible dividends. No salary from the corporation, nothing kept in it, no eligible dividends from income above the business limit, and no associated corporations sharing the $500,000 limit. Alternative minimum tax is not modelled.
- Revenue is before GST/HST. Sales tax you collect is passed on to the government; see the GST/HST calculator.
- Quebec is under review. The Quebec figures use Quebec's brackets and basic personal amount, QPP and QPIP and the federal Quebec abatement, but not Quebec's deduction for workers or the Health Services Fund contribution on business and dividend income, which we could not confirm at Revenu Québec.
- Self-employed EI is optional. Self-employed people can register for EI special benefits, which comes with its own premium; it is not included.