What Is the Sole Proprietorship Tax Rate in Ontario?

A sole proprietorship in Ontario has no separate tax rate. Your net business profit flows onto your personal T1 return and is taxed at combined federal and Ontario marginal rates that run from 20.05% up to 53.53% for 2026, depending on your total taxable income.¹ On top of income tax you also owe Canada Pension Plan contributions on your net earnings and, once your income passes $20,000, the Ontario Health Premium. Those three charges together make up the real tax burden on a sole proprietor’s profit.

2026 Combined Federal and Ontario Marginal Rates

Marginal rates apply only to the income that falls within each bracket, not to your whole income. The federal system for 2026 starts at 14% on the first $58,523 of taxable income and tops out at 33% above $258,482.¹ Ontario layers its own rates on top, from 5.05% at the low end to 13.16% above $220,000.² Stacked, they produce the following combined marginal rates for an Ontario resident in 2026:

$0 to $16,452: 0.00% (sheltered by the federal basic personal amount)
$16,453 to $53,891: 20.05% (with a temporary rise to 24.10% between $18,931 and $24,870 caused by the Ontario low-income tax reduction clawback)
$53,892 to $58,523: 23.15%
$58,524 to $94,901: 29.65%
$94,902 to $107,785: 31.48%
$107,786 to $111,810: 33.89%
$111,811 to $117,045: 37.91%
$117,046 to $150,000: 43.41%
$150,001 to $181,440: 44.97%
$181,441 to $220,000: 48.26%
$220,001 to $258,482: 49.82%
$258,483 and above: 53.53%

The federal basic personal amount of $16,452 makes the first slice of income effectively tax-free. Once net income passes $181,440, that basic personal amount begins to phase down, which is why the marginal rate steps up at that threshold.² These rates apply to taxable income after business deductions, not to your gross revenue.

Ontario Health Premium on Top

The bracket table above does not include the Ontario Health Premium, which many sole proprietors miss until they see their notice of assessment. The premium starts once your taxable income passes $20,000 and rises to a maximum of $900 per year on income above $200,000.² Its schedule:

$20,000 or less: $0
$20,001 to $36,000: 6% of income above $20,000, up to $300
$36,001 to $48,000: $300 plus 6% of income above $36,000, up to $450
$48,001 to $72,000: $450 plus 25% of income above $48,000, up to $600
$72,001 to $200,000: $600 plus 25% of income above $72,000, up to $750
$200,001 and above: $750 plus 25% of income above $200,000, up to $900

The premium is calculated automatically when you file. It is a modest but real add-on to the marginal rates above.

CPP Contributions on Your Net Profit

Sole proprietors pay both the employer and employee shares of Canada Pension Plan contributions. Where an employee splits the cost with an employer, you cover the full 11.9% yourself.³ The contribution is based on net business income after expenses, with the first $3,500 exempt. For 2026 the first earnings ceiling is $74,600, so you pay 11.9% on net income between $3,500 and $74,600.

If net earnings pass $74,600, a second tier called CPP2 applies to income up to $85,000, at a self-employed rate of 8%, with a maximum additional contribution of $832.³ A sole proprietor earning above $85,000 could owe roughly $9,293 in total CPP contributions for 2026.

One offsetting detail: because you pay both halves, the employer-equivalent portion (half your total CPP contribution) is deductible against your net income on your T1. That shrinks the taxable income your brackets apply to, so the effective cost lands below the headline rate.

Your Rate Applies to Net Profit, Not Revenue

Every legitimate business expense you deduct reduces the income that gets taxed. Sole proprietors report revenue and expenses on Form T2125 (Statement of Business or Professional Activities), which feeds into the T1 return.⁴ Common deductible categories include advertising, business insurance, interest and bank charges on business accounts, office supplies, professional fees, rent, the business-use portion of vehicle expenses, utilities, repairs, licences, memberships, travel, and delivery costs. Meals and entertainment are partially deductible.⁵ Keep receipts. The CRA can request documentation years after filing, and unsupported claims get denied.

Home Office Expenses

If you run the business from home, a proportional share of household costs such as heating, electricity, insurance, cleaning supplies, and property taxes or mortgage interest can be deducted. To qualify, the workspace has to be either your principal place of business or a space used exclusively and regularly to meet clients.⁶ A reasonable method, such as dividing the workspace area by the home’s total area, is used to calculate the deductible portion. If the space is also used personally, reduce the claim further based on hours of business use per day.

Home office expenses cannot create or increase a business loss. If your deduction exceeds your net business income for the year, the unused amount carries forward rather than producing a loss.⁶

Capital Cost Allowance

Long-lasting assets like computers, furniture, and vehicles cannot be deducted in full the year you buy them. Instead, you claim depreciation over several years through Capital Cost Allowance. Each asset type falls into a CCA class with its own annual rate. Furniture and equipment costing $500 or more go into Class 8 at 20% per year; general-purpose computers fall into Class 50 at 55%.⁷ The half-year rule usually caps your first-year CCA at 50% of the normal amount. CCA is optional in any given year, so you can skip the claim in a low-income year and preserve the deduction for a year when it saves more tax.

HST Is Separate From Income Tax

Ontario charges 13% Harmonized Sales Tax, combining the 5% federal GST with an 8% provincial component.⁸ HST is not part of your bracket calculation. It is a consumption tax you collect on behalf of the government once your total taxable revenue exceeds $30,000 in a single calendar quarter or over four consecutive quarters. Below that, you qualify as a small supplier and registration is optional.

Once registered, you charge 13% on taxable sales, remit that to the CRA, and recover the HST you paid on business purchases through input tax credits.⁹ To support a credit you need proper invoices showing the supplier’s HST registration number. Personal expenses and club memberships do not qualify.

Paying as You Go: Installments and Deadlines

Sole proprietors have no employer withholding tax at source, so the CRA collects through quarterly installments. Installments are required if your net tax owing exceeds $3,000 in 2026 and also exceeded $3,000 in either 2025 or 2024.¹⁰ Due dates are March 15, June 15, September 15, and December 15. Missing or underpaying installments triggers compound interest at the CRA’s prescribed rate, and a further penalty can apply if instalment interest for the year exceeds $1,000.¹¹

Self-employed filers have until June 15, 2026 to file the T1 return, but any balance owing is still due April 30, 2026. The later filing date does not extend the payment deadline, so you have to estimate and pay by April 30 even if the return is not finished.¹² Filing late with a balance owing triggers a 5% penalty on the balance plus 1% per full month outstanding, up to 12 months. Repeat late filers who receive a formal demand to file can see the penalty double to 10% plus 2% per month for up to 20 months.¹³ These penalties sit on top of daily compound interest. Filing on time even when you cannot pay in full avoids the late-filing penalty and leaves you owing only interest on the balance.

1
Canada Revenue Agency. Income Tax Rates and Income Thresholds
2
Canada Revenue Agency. T4032ON Payroll Deductions Tables – General Information
3
Canada.ca. Contributions to the Canada Pension Plan
4
Canada Revenue Agency. Completing Form T2125
5
Canada Revenue Agency. Expenses Section of Form T2125
6
Canada Revenue Agency. Business-Use-of-Home Expenses
7
Canada.ca. Classes of Depreciable Property
8
Canada Revenue Agency. GST/HST Memorandum 2.1 – Required Registration
9
Canada.ca. Input Tax Credits
10
Canada.ca. Required Tax Instalments for Individuals
11
Canada Revenue Agency. Interest and Penalty Charges – Required Tax Instalments for Individuals
12
Canada Revenue Agency. Due Dates and Payment Dates – Personal Income Tax
13
Canada Revenue Agency. Interest and Penalties on Late Taxes – Personal Income Tax