PSB Tax Cost Calculator for Ontario Contractor Corporations

This PSB tax cost calculator shows how much more corporate tax your Ontario corporation could pay if CRA treats it as a personal services business. It compares the current 11.2% small business rate with the 44.5% PSB rate on the same income, then shows how paying yourself a salary changes the gap.

How do I use the PSB tax cost calculator?

I built this calculator for incorporated IT and finance contractors who bill through their own Ontario corporation, often through a staffing agency.

Enter three amounts and your year-end date. The results update as you type. Scenario 1 uses your income and expenses with no salary. Scenario 2 adds the salary you entered. Each shows taxable income, corporate tax and the effective rate in a "Not a PSB" column and a "PSB" column. The last row shows the extra corporate tax if CRA treats the corporation as a PSB.

The defaults match a common contract: $95 an hour, 37.5 hours a week, 48 weeks a year. That is $171,000 of billings.

What does each input mean?

Corporate income for the year before salary. Your corporation's contract revenue for the taxation year, before salary and other expenses. Use the amount billed to the agency or client, without GST/HST.

Business expenses other than salary. The costs your corporation deducts today: home office rent, software, a laptop and other equipment, phone, insurance, accounting fees and similar costs.

Salary paid to you by your corporation. Gross salary for the year, paid through payroll with a T4 slip. Enter 0 if you take dividends only or leave the money in the corporation.

Taxation year-end date. The last day of your corporation's taxation year, as shown on your T2 return. The calculator assumes a full 12-month year.

Which tax rates does the calculator use?

For a corporation that is not a PSB, the calculator applies the combined Ontario small business rate to the first $500,000 of taxable income. That rate is the 9% federal small business rate plus the Ontario small business rate. The 2026 Ontario Budget cut Ontario's rate to 2.2% from 3.2%, starting July 1, 2026. So the combined rate is now 11.2%. Income earned before July 1, 2026 was taxed at 12.2%.

Taxable income above $500,000 is taxed at the 26.5% general rate, which is 15% federal plus 11.5% Ontario. The calculator assumes the full $500,000 limit, which associated corporations share.

For a PSB, the calculator applies 44.5% to all taxable income. There is no lower rate on the first dollar.

How is the July 1, 2026 rate cut prorated?

The Ontario cut is prorated by days when a taxation year straddles July 1, 2026. The calculator counts the days in your 12-month taxation year before July 1, 2026 and the days on or after it. Then it blends the two rates.

A December 31, 2026 year-end has 181 days at 12.2% and 184 days at 11.2%. The blended rate is 11.69589%, shown as 11.70%. On $150,000 of taxable income, that is $17,543.84 of tax.

A June 30, 2026 year-end falls fully before the cut, so it gets 12.20%. A December 31, 2027 year-end gets 11.20%. With the default numbers and a December 31, 2026 year-end, the Not a PSB tax in Scenario 1 is $18,947.34 rather than $18,144, because of the blend.

Leap years count as 366 days. The calculator assumes current rates continue for later years.

Where does 44.5% come from?

The federal rate starts at 38%. The 10% provincial abatement brings it to 28%. A PSB does not get the 13% general rate reduction or the small business deduction. It also pays an additional 5% tax on PSB income under section 123.5 of the Income Tax Act. That makes 33% federal. Ontario adds its 11.5% general rate, for a combined 44.5%.

The July 1, 2026 cut does not touch the PSB rate. So the gap between the two rates is now 33.3 percentage points, compared with 32.3 before the cut.

Why are expenses removed in the PSB column?

Paragraph 18(1)(p) of the Income Tax Act limits what a PSB can deduct. The allowed items are:

• salary, wages or other remuneration paid in the year to the incorporated employee;
• the cost of benefits or allowances provided to the incorporated employee;
• certain amounts spent selling property or negotiating contracts that an employee could deduct; and
• legal expenses to collect amounts owing for services.

Rent, software, equipment, travel, phone, insurance, accounting fees and similar costs are denied. So the PSB column adds your expenses back. With the defaults, taxable income rises to $171,000 from $162,000, and all of it is taxed at 44.5%.

The calculator treats every dollar in the expenses field as denied. If some costs fall within the allowed items, your real PSB figure would be lower.

How does paying a salary change the PSB tax cost?

Salary paid to you is deductible even for a PSB. It is the first allowed item under 18(1)(p). So every dollar of salary takes a dollar out of the income exposed to 44.5%. That is why the gap shrinks in Scenario 2.

But the salary does not disappear. It is taxed in your hands at your personal marginal rate, which reaches 53.53% in Ontario for 2026 on taxable income over $258,482. Salary also brings payroll work: CPP, T4 slips and source deduction remittances. The calculator shows corporate tax only, so it cannot tell you whether a salary is the right choice overall. Our page on salary vs dividend for incorporated contractors covers the pay mix in more detail.

Salary also does not change whether your corporation is a PSB. It only changes how much corporate income is left to be taxed at 44.5%.

What do the numbers look like with and without salary?

Both columns use $171,000 of revenue, $9,000 of expenses and a full taxation year at 11.2%, such as a December 31, 2027 year-end.

With the salary, the corporate gap falls by $39,960. That is not a $39,960 saving. The $120,000 salary is now taxed in your hands, and this table leaves out employer CPP and personal tax.

What does this estimate leave out?

Please read the results as a first look, not a tax return. The calculator does not include:

• personal tax on salary or dividends;
• CPP and EI;
• the passive income rules, which can reduce the small business limit when a corporation earns investment income;
• a small business limit shared with associated corporations;
• short taxation years, such as a first year after incorporation or a change of year-end;
• the allowed 18(1)(p) items other than salary;
• arrears interest if CRA reassesses past years.

It also leaves out what happens after money leaves the corporation. PSB income is taxed at the full rate, so it adds to the general rate income pool (GRIP). Dividends paid from it can be designated eligible dividends. Integration still leaves a gap. On $100,000 of PSB income at top 2026 rates, corporate tax of $44,500 plus personal tax of $21,833.70 on a $55,500 eligible dividend comes to $66,333.70. The same $100,000 paid as salary costs $53,530 in personal tax. The PSB route costs $12,803.70 more.

CRA can look at more than one year, and each year stands on its own facts. Our page on CRA PSB review explains what to expect and how we support you as the corporation's representative.

Does the calculator tell me if my corporation is a PSB?

No. It assumes the answer both ways and shows the cost. Whether your corporation is a PSB depends on facts.

Under subsection 125(7), a PSB exists when the person doing the work, or a person related to them, owns 10% or more of any class of shares, directly or indirectly, and the worker would reasonably be regarded as an officer or employee of the client if the corporation did not exist. There are two exceptions: the corporation employs more than five full-time employees in the business throughout the year, or the amount is received from an associated corporation. Whether owners or family members count toward the five needs review.

CRA looks at the whole relationship using the Wiebe Door and Sagaz tests: control, ownership of tools and equipment, chance of profit and risk of loss, and whether the work is part of the client's business or your own. Fixed 35, 37.5 or 40 hour schedules, timesheet approval and client laptops point toward control, but hours alone never decide it. Our page on 40 hour contract PSB risk explains how hours are read. Our guide to personal services business risk covers the full test.

How can we help you read your results?

If the extra tax figure worries you, look at your facts rather than guess. We review your contract and working facts as part of tax planning. We look at the agency agreement, the end client's onboarding rules, how you are paid and how you work. Then we talk through ways to reduce risk, document your position, and fit salary and dividends to your numbers.

We are accountants, not lawyers. Contract wording is for your lawyer.

We also prepare your T2 return, run payroll with T4 slips and remittances, file GST/HST and keep your books, on a fixed flat fee. We work only with incorporated Canadian businesses. If you are in the GTA, our page for an incorporated contractor accountant in Toronto explains how we work with contractors. We have 1300+ five-star Google reviews and are a 2026 Xero Awarded Firm.

Please run your own numbers above, then book a consultation so we can review your contract, your year-end and your pay mix together. You can also call us at 647-212-9559 or email info@gondaliyacpa.ca. We are open 9AM to 8:30PM, Monday to Sunday.

Frequently asked questions

What rates does the PSB tax cost calculator use?

For a corporation that is not a PSB, it uses 9% federal plus the Ontario small business rate (3.2% before July 1, 2026 and 2.2% from July 1, 2026) on the first $500,000, and 26.5% above that. For a PSB, it uses 44.5% on all taxable income.

Why does a December 31, 2026 year-end show 11.70%?

That taxation year has 181 days before July 1, 2026 at 12.2% and 184 days from July 1, 2026 at 11.2%. The day-weighted rate is 11.69589%, which the calculator shows as 11.70%.

Why does the PSB column ignore my business expenses?

Paragraph 18(1)(p) of the Income Tax Act denies most PSB expenses, such as rent, software, equipment, phone, insurance and accounting fees. Salary, wages, benefits and allowances paid to the incorporated employee stay deductible, along with a few narrow items.

Does paying myself a salary remove PSB risk?

No. Salary is deductible even for a PSB, so it reduces the corporate income taxed at 44.5%. It does not change whether your corporation is a PSB, and the salary is taxed personally at your marginal rate.

Does the calculator include personal tax, CPP or EI?

No. It shows corporate tax only. It leaves out personal tax on salary or dividends, CPP, EI and the passive income rules. Please book a consultation if you want the full picture for your facts.

Can I use the calculator if my corporation is not in Ontario?

It uses Ontario rates only. Other provinces have different small business and general rates, so the results would not match a corporation taxed in another province.

Does the calculator save the numbers I enter?

No. The calculator runs in your browser. It does not store your inputs or send them to us.