How much of each deposit should your corporation set aside for tax?

The four bills, and which of them your deposits have to cover

An incorporated owner has up to four tax bills rather than one, and each has its own deadline and its own pot of money. The first is sales tax, meaning the GST or HST you add on top of what you invoice. The second is corporate income tax on the year’s profit after all its costs, where a salary you’re paid counts as a cost and a dividend doesn’t. The third is payroll deductions, meaning the amounts held back from your pay and sent to the government. The fourth is your own personal tax on what you took out.

Three of the four come out of the money customers deposit: the sales tax, the corporate tax and, on a salary, the payroll deductions. The fourth, your own tax on a dividend, comes out of the dividend once it’s paid to you, because nothing is withheld from one. The calculator prices every bill from the same year of revenue and costs, and it shows the corporation’s share of each deposit apart from your share of each dividend, so no bill is counted twice.

Most rules of thumb you’ll find online collapse the bills into one percentage of revenue, which is why no two of them agree. Two corporations with identical revenue have different corporate bills where one pays its owner a salary and the other pays dividends. The sales tax rate follows where the sale is made rather than where the corporation sits, so an Alberta corporation billing clients in Ontario charges Ontario’s HST. Asking for the revenue, the costs, the customers and the draw separately is what lets the arithmetic tell those cases apart.

Why copying last year beats any percentage of revenue

The guide this calculator comes from treats a percentage of revenue as a first-year measure and nothing more. Once one full tax year has been assessed, you have a figure the CRA has already agreed with. Take last year’s corporate tax off the T2 and your own tax off the T1, and a quarter of each into the reserve every three months funds the year. The CRA’s own instalment schedule is a separate thing, monthly unless the corporation qualifies to pay quarterly, and instalments worked from last year’s figure stop the CRA charging instalment interest only when each one is paid in full and on time.

The downside of copying last year is real, and it’s that a lean year over-funds the reserve for nothing. Money paid to the CRA early earns a credit that can only offset a shortfall in the same year, and the credit is never paid out to you. The condition that flips it is a year you already know will be much smaller than the last one. Estimating this year leaves more cash in the business, at the price of interest if you guess low.

A percentage of the deposit still earns its place in two situations. The first is a first year, where there’s nothing to copy and the money has to go somewhere from the very first invoice. The second is a year where revenue has moved enough that last year’s figure no longer describes the business. A sanity check on the quarterly amount is worth having before your accountant rebuilds it.

What salary and dividends do to the reserve

A salary is pay for work you do for the corporation, and the corporation subtracts it from the profit it pays corporate tax on. It subtracts the employer half of the Canada Pension Plan contribution as well, which is a real cost on top of the salary itself. So a salary shrinks the corporate bill and creates a payroll bill in its place. The payroll bill then leaves the account on your CRA remittance schedule rather than sitting in a reserve until year-end.

A dividend works the other way around. The corporation subtracts nothing for it, because a dividend is a share of profit the corporation has already paid corporate tax on once. Nothing is withheld on the way out either, so the whole personal bill arrives when you file your own return, and it’s yours to hold back from each dividend rather than the corporation’s to hold back from each deposit. Until a first personal return is assessed, that figure has nothing behind it but arithmetic, which is why the guide rounds it up rather than down.

The two routes finish close together in total, which is what Canada’s tax system is built to produce. Our salary or dividends calculator prices the difference to the dollar for your own figures. For a reserve the interesting difference isn’t the total, it’s the timing. Salary sends payroll deductions to the CRA through the year, on the remittance schedule it assigns you. Dividends leave you to pay your own income tax, by instalments where required and otherwise when the balance falls due.

What this calculator leaves out

Several things sit outside the arithmetic on purpose. The GST/HST quick method replaces the credits you claim on your costs with a flat rate on your sales. For a service business it would change the sales tax line, and it has a calculator of its own. Provincial sales tax in British Columbia, Saskatchewan and Manitoba is a separate tax with its own registration, and none of the three is priced here.

The customer question charges the whole year at one province’s rate, and it covers the provinces and territories only. A sale made outside Canada isn’t priced, and neither are the rules the CRA sets for particular services (e.g. freight, passenger transport and telecommunications), which can put a sale somewhere other than the customer’s address.

Payroll for staff is left out as well, so a corporation with employees holds back more than this page shows. Remittances, vacation pay and a provincial payroll levy all sit on top of the figures here. Instalment timing is named but never scheduled, because our instalment calculator answers whether the CRA can ask you at all.

On the personal side the arithmetic assumes one owner under 65, in one province, with no other income and no other corporation. Provincial low-income reductions aren’t applied, the Canada Child Benefit isn’t modelled, and alternative minimum tax is out of scope. A low salary also earns the Canada workers benefit, up to $1,665 for one person in 2026, and it comes back on your own return rather than off the reserve. Where a spouse holds shares, or a holding company sits above the operating company, the reserve needs a professional looking at your actual numbers.

The full argument, including where to hold the reserve and what happens in a first year with nothing to copy, sits in the guide this calculator was built from. How much to set aside covers it, and Salary or dividends covers the choice between the two ways of paying yourself. The GST/HST quick method calculator prices the one change to the sales tax line this page leaves out.

Three worked examples

To provide an example, take an Ontario consultancy with its clients in Ontario, in a first tax year that runs a full twelve months. It expects to invoice $220,000 before GST/HST against $70,000 of costs, and its owner plans to take $90,000 out as dividends.

The year brings in $248,600 of deposits, of which $28,600 is GST/HST that was never the corporation's money. Corporate tax on the $150,000 of profit comes to $17,544, so the corporation holds back $46,144 of the year's deposits, which is $18.56 out of every $100 and leaves $81.44 for the costs, the owner and whatever the corporation keeps. Personal tax on the $90,000 of dividends comes to $10,185, or 11.3% of each dividend, and the owner holds it back from the dividends once they're paid rather than from the deposits.

Now take the same corporation with the same revenue and costs, paying the owner $90,000 as a salary through payroll instead of as dividends.

Paying $90,000 as salary costs the corporation another $4,646.45 in employer CPP, and both come off the profit first, so only $55,354 bears corporate tax and the bill falls to $6,474. The payroll side rises to $26,540, being the tax on that salary plus $4,646.45 of CPP from each side, and it leaves the corporation's own account as well. The corporation's share moves to $61,614, or $24.78 per $100, most of it leaving the account on its CRA remittance schedule rather than at the year-end, and nothing more is held back from the owner's pay.

The third example is an Alberta owner with clients in Alberta who answered "Not sure" to the GST/HST, draw and last-year questions, on $120,000 of revenue and $25,000 of costs with $60,000 taken out.

Answering "Not sure" three times takes the safe answer wherever one exists. The calculator assumes the corporation charges GST/HST, prices the $60,000 both as a salary and as dividends and keeps the salary pricing, which needs the larger reserve here, and leaves the timing of the corporate bill open until last year's notice of assessment has been read. A sale made in Alberta carries the 5% GST alone, where a sale made in Ontario carries 13% HST, so with the clients in Alberta the sales tax line is only $4.76 per $100. The corporation holds back $19.35 per $100, of which $2.76 is corporate tax on the $95,000 of profit.

Set aside per $100, by province

Each row runs the calculator’s own default figures through one province, with the customers in that same province: $220,000 of revenue before GST/HST, $70,000 of costs, and $90,000 taken out as dividends. The first three figures are what the corporation holds back from each $100 deposited, and the last is your own tax as a share of each dividend. The corporate column carries the combined federal and provincial small business rate for a year ending December 31, 2026.

The spread across the provinces comes almost entirely from the sales tax column, and that rate belongs to where the sale is made rather than where the corporation sits. A sale made in an HST province carries two or three times the tax of a sale made where only the GST applies. None of that money was ever the corporation’s, so a business selling into an HST province isn’t worse off. The business simply holds more of somebody else’s money, for longer. Quebec and the territories are absent for two different reasons, each of which the calculator states when you choose them.