"Should I incorporate?" is one of the most common questions we are asked, and the honest answer is that it depends far more on your situation than on any general rule. Incorporation brings real advantages, but it also brings cost and administration that a sole proprietorship does not have.
What incorporation actually does
A corporation is a separate legal entity from you. It files its own tax return, owns its own assets, and signs its own contracts. That separation is the source of most of the benefits and all of the extra work.
Signals it may be worth considering
- You are earning more than you need to live on. This is the big one. If profits stay in the corporation rather than being drawn out, they are taxed at corporate rates, which lets you defer personal tax until you actually take the money.
- Liability is a genuine concern. Incorporation puts a legal barrier between business risk and personal assets, though lenders often ask owners for personal guarantees anyway.
- Your clients require it. Some industries and contracts will only engage an incorporated supplier.
- You want flexibility in how you are paid. A corporation lets you choose between salary and dividends, and time when income lands.
What comes with it
These are obligations, not optional extras:
- A T2 corporate return every year, even if the corporation is inactive or lost money.
- Separate books and a separate bank account. Corporate and personal money genuinely cannot be mixed.
- An annual return to your provincial corporate registry to keep the corporation in good standing. This is a different filing from your tax return, and it is a common thing to forget.
- Payroll or dividend paperwork whenever you pay yourself.
- Higher accounting fees than a sole proprietorship, because there is more to prepare.
The misconception worth clearing up
Incorporating does not reduce tax on money you need to spend. If you draw out everything the business earns, you pay roughly the same overall tax either way. The advantage shows up when income can stay in the corporation. If your business income is fully consumed by household costs, incorporation may simply add expense without a benefit.
How to decide
The decision is worth modelling with real numbers rather than guessing: your income, what you need personally, your risk exposure, and your plans for the next few years. We can walk through that with you before you commit, and if incorporating is right, we handle the corporate tax side from there. Book a consultation to talk it through.
A note on this article: tax rules and deadlines change. This article is general information, not advice for your specific situation - for that, talk to us.