Incorporating your business in Canada can unlock powerful tax planning tools — but it’s not always the right move. If you’re a sole proprietor or partnership wondering whether it’s time to take the leap, here’s what you need to know.

What Does Incorporating Actually Do?

When you incorporate, your business becomes a separate legal entity. That means:

  • Your company earns income, not you personally.
  • The company files its own corporate tax return.
  • You get paid by the corporation — usually through salary or dividends.

The Tax Advantages of Incorporating

  1. Access to the Small Business Tax Rate
  • The first $500,000 of active business income is taxed at about 12–13% (Ontario/Alberta range).
  • That’s much lower than top personal tax rates, which can exceed 50%.
  1. Tax Deferral
  • If you don’t need all your profits right away, you can leave money in the company and defer personal tax until a later year.
  • This allows for faster reinvestment and more capital to grow your business.
  1. Income Splitting Opportunities
  • Pay family members a reasonable salary or dividend, subject to TOSI (Tax on Split Income)
  • With proper structure, you can shift income to lower-bracket family members.
  1. Lifetime Capital Gains Exemption (LCGE)
  • If you sell shares of your qualifying corporation, the first ~$1M in capital gains may be tax-free.

When Incorporation Doesn’t Help

  1. You Withdraw All the Income
  • If you need all your earnings to live on, incorporation may not save tax — in fact, it could slightly increase admin and cost.
  1. You Have Losses
  • As a sole proprietor, business losses can offset other personal income. You lose this flexibility when incorporated.
  1. You’re in a Low Personal Tax Bracket
  • If your income is modest, the benefit of deferral may not outweigh the added complexity and fees.

Other Considerations

  • Professional Fees & Admin: Incorporation brings extra costs — legal, accounting, annual filings.
  • Limited Liability Protection: Incorporation provides legal separation, which can help protect your personal assets (though not always in professional services).
  • CRA Registrations: You’ll need a corporate number, payroll, GST/HST accounts, and more.

Should You Incorporate?

If you’re consistently earning more than you need to live on — or plan to grow and sell your business — incorporation is worth serious consideration. But don’t jump in just because everyone else is doing it.

We help business owners evaluate the pros and cons of incorporating based on your specific numbers and goals.

Thinking About Incorporating?
 Let’s walk through the math together and build the right structure from day one.