"Should I incorporate?" is probably the question we hear most from growing businesses - and the honest answer is: it depends on your numbers. Here's the framework we walk through with clients.
What incorporation actually changes
A corporation is a separate legal person. It earns the income, pays its own (much lower) tax rate, owns the assets, and carries the liabilities. You get paid by the corporation - as salary, dividends, or both - and pay personal tax only on what you take out.
The case for incorporating
- Tax deferral - active business income inside a CCPC is taxed at roughly 11% combined federal/BC on the first $500,000 (thanks to the Small Business Deduction). If you earn more than you spend personally, the difference can grow inside the company at that low rate.
- Liability protection - your personal assets are generally shielded from business creditors and lawsuits (with exceptions, like personally guaranteed loans).
- Income flexibility - choose your salary/dividend mix, smooth income across years, and potentially split income within the rules.
- The Lifetime Capital Gains Exemption - selling qualifying small-business shares can shelter over $1 million of gains from tax. Sole proprietors don't get this.
- Credibility - some clients, lenders, and contracts simply prefer dealing with a corporation.
The case against (for now)
- Cost and complexity - incorporation fees, a separate T2 return every year, separate books, and annual corporate filings. Budget for meaningfully higher accounting costs.
- No benefit if you spend everything - if you draw out every dollar the business makes, the deferral advantage mostly disappears; you'll pay roughly the same total tax with more paperwork.
- Losses are trapped - early-stage losses inside a corporation can't offset your personal income the way sole-proprietor losses can.
The rule of thumb
Incorporation starts making sense when the business reliably earns more than you need to live on - for many people that's somewhere around $100,000 of net income, but the right threshold depends on your household, your province, and your plans. It's a calculation, not a guess.
Run your numbers before you decide
We do this analysis with clients all the time: your actual income, your actual spending, projected over the next few years, with the real tax math for each structure. Book a free consultation and we'll tell you honestly whether incorporation would pay for itself - and if not, what would have to change first.