At what income incorporate?

Generally over $60,000 net when not spending all personally.

12.2% corp vs up to 53.53% personal. Tax deferral.

Defer tax. Savings from timing and reinvestment.

9% federal on first $500K. 12.2% Ontario.

Canadian-Controlled Private Corporation. Gets SBD and LCGE.

$971,190 tax-free capital gains on qualifying shares.

Corporation is separate entity. Personal assets protected.

$1,500-$3,000/yr for T2, bookkeeping, annual return.

Wait until consistent income over $60K.

Uses assigned number as name. No NUANS needed.

Yes. Section 85 rollover for tax deferral.

Transfer assets at tax cost. Defer gains.

Yes. T2 for corp, T1 for personal. Both required.

Possible. TOSI rules apply since 2018.

Banks may need 2 years T2s. T4 salary preferred.

Yes. Passive income over $50K reduces SBD.

Separate corp for investments and LCGE multiplication.

Usually no. No SBD. ~50% corp tax on rental.

Yes if over $60K net and retaining profits.

May be required depending on industry.

Yes. File all T2s, settle HST, Articles of Dissolution.

Effectively mandatory for corporations.

Yes. 25% Canadian directors required federally.

Free consultation. We handle everything.

Free Infographic · Decision Flowchart · Licensed CPA

Should You Incorporate? Decision Flowchart

Q: Federal or provincial?

Federal $273 for all provinces. Ontario $360.

Answer 7 questions. Get a clear answer. Download the free PDF flowchart to keep. Built by a licensed CPA for Canadian business owners.

See the Flowchart Download Free PDF

You should incorporate in Canada when your business earns more than you need to live on, you want liability protection, you plan to reinvest profits, or you need the lifetime capital gains exemption. If you spend everything you earn personally, a sole proprietorship may be simpler and cheaper.

The 7 Questions That Determine If You Should Incorporate

Incorporation is not automatically better. It costs money to set up, requires annual T2 filings, financial statements and ongoing bookkeeping. The tax savings only appear when certain conditions are met. This flowchart walks you through the 7 questions that matter.

Incorporation Decision Flowchart

Should You Incorporate Your Business?

▼

1Is your annual net self-employment income over $60,000?

YES ▼

Continue

NO ▶

Likely stay sole prop. Tax savings minimal below $60K.

▼

2Do you spend all your business income personally each year?

NO ▼

Good. Retained $ = tax deferral.

YES ▶

No deferral benefit. Integration means similar total tax.

▼

3Do you need personal liability protection from business risks?

YES ▼

Strong reason to incorporate.

NO ▼

Continue anyway.

▼

4Do you plan to reinvest profits back into the business or investments?

YES ▼

12.2% corp tax vs 40%+ personal. Major deferral.

NO ▼

Continue.

▼

5Do you want to income split with a spouse or adult family members?

YES ▼

Possible via salary or dividends (TOSI rules apply).

NO ▼

Continue.

▼

6Do you plan to sell the business someday?

YES ▼

$971,190 LCGE (2024) shelters capital gains tax-free.

NO ▼

Continue.

▼

7Are you comfortable with the added cost of annual T2 filing, bookkeeping and CPA fees?

YES ▼

Ready to incorporate.

NO ▶

Budget $1,500-$3,000/yr for compliance.

▼

✅
4+ YES answers
Incorporate Now
Tax deferral, liability protection and planning benefits justify the cost.

⚠️
2-3 YES answers
Consult a CPA
Benefits depend on your specific numbers. Get a personalized analysis.

❌
0-1 YES answers
Stay Sole Prop
Incorporation costs likely exceed tax savings right now. Revisit annually.

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Sole Proprietorship vs Corporation: Quick Comparison

Factor	Sole Proprietorship	Incorporated (CCPC)
Setup cost	$0 (just start operating)	$273 federal or $360 Ontario
Annual compliance cost	T1 filing from $150	T2 + bookkeeping from $1,500/yr
Tax rate on first $500K	20.05% to 53.53% personal	12.2% corporate (Ontario)
Liability	Unlimited personal liability	Limited to corporate assets
Tax deferral	None. All income taxed immediately.	Yes. Retained earnings at 12.2% until withdrawn.
Income splitting	Very limited	Salary and dividends to family (TOSI rules)
Lifetime capital gains exemption	Not available	$971,190 (2024) on qualifying share sale
CPP	Both portions (employee + employer)	Salary: both. Dividends: none.
RRSP room	Created from net self-employment income	Created from salary only. Not from dividends.
Credibility	Informal perception	"Inc." signals established business

Case Study: Toronto Consultant Incorporated at $85,000 and Saved $6,400 in Year One

A marketing consultant earning $85,000 net was paying $22,800 in personal tax as a sole proprietor. After incorporating, she paid herself $55,000 salary (for RRSP room) and retained $30,000 in the corporation at 12.2% ($3,660 corporate tax). Personal tax on salary: $9,100. Total tax in Year 1: $12,760 versus $22,800 as sole prop. Immediate savings: $6,400 (tax deferral on retained earnings). The retained $26,340 after corporate tax was reinvested into the business. Incorporation cost: $360 (Ontario). T2 filing: $1,500. Net savings after costs: $4,540 in Year 1 alone. Get Started →

$22,800 personal tax reduced to $12,760. $6,400 deferred. Net savings after costs: $4,540.

We Incorporate Ontario Businesses from $273

Federal incorporation $273. Ontario $360. T2 filing from $1,500. AFFORDABLE flat fees.

Incorporation Services

People Also Ask: Should You Incorporate?

At what income should I incorporate in Canada?

Generally when net self-employment income exceeds $60,000 and you do not need to spend all of it personally. Below $60,000, the compliance costs often outweigh the tax deferral benefit.

How much does it cost to incorporate in Canada?

Federal incorporation: $273 online. Ontario provincial: $360. Legal and CPA fees vary. At Gondaliya CPA we handle the full process. Incorporation Services →

What is the tax advantage of incorporating?

Tax deferral. The first $500,000 of active business income is taxed at 12.2% (Ontario) inside the corporation versus up to 53.53% personally. You defer the difference until you withdraw the funds.

Do I save tax by incorporating?

You defer tax, not necessarily eliminate it. When you withdraw funds as salary or dividends, personal tax applies. The savings come from timing: money grows inside the corporation at the lower rate before you withdraw it.

What is the small business deduction?

SBD reduces the federal corporate rate from 15% to 9% on the first $500,000 of active business income. Combined Ontario rate: 12.2%. Only available to CCPCs.

What is a CCPC?

Canadian-Controlled Private Corporation. A corporation that is not publicly traded and is controlled by Canadian residents. Most small businesses qualify. CCPCs get the SBD and LCGE.

What is the lifetime capital gains exemption?

$971,190 (2024) of capital gains on the sale of qualifying small business corporation shares is tax-free. Only available through a corporation, not a sole proprietorship. Multiplied if family members hold shares.

Does incorporation protect me from lawsuits?

The corporation is a separate legal entity. Creditors can generally only pursue corporate assets, not your personal home, savings or other property. Exceptions: personal guarantees, fraud, director liability for source deductions.

What are the ongoing costs of a corporation?

Annual T2 filing (from $1,500), bookkeeping (from $150/month), annual return filing ($20-$60), and potentially payroll processing. Budget $1,500 to $3,000/year minimum for a small corporation.

Can I incorporate a side hustle?

Yes, but the costs may not justify it until the side hustle generates consistent income above $60,000. A sole proprietorship with T2125 reporting is simpler and cheaper below that threshold.

Federal or provincial incorporation?

Federal ($273) allows you to operate under the same name in all provinces. Ontario provincial ($360) restricts the name to Ontario. Most businesses choose federal for flexibility.

How long does incorporation take?

Federal online: 1 to 3 business days. Ontario: 1 to 5 business days. Name searches (NUANS) take 1 business day. Total process: typically under 1 week.

Do I need a lawyer to incorporate?

Not required. A CPA can handle the incorporation, articles, business number registration, HST registration and initial corporate setup. Company Registration →

What is a numbered company?

A corporation using its assigned number as the legal name (e.g., 1234567 Ontario Inc.) instead of a named company. Cheaper because no NUANS name search is needed. You can register a business name separately.

Can I convert my sole proprietorship to a corporation?

Yes. You incorporate a new company and transfer business assets using a Section 85 rollover (tax-deferred) or an asset sale. Your CPA coordinates the transition to avoid triggering tax.

What is a Section 85 rollover?

A tax provision that allows you to transfer assets from a sole proprietorship (or another corporation) to a new corporation at tax cost, deferring capital gains and recapture until a future disposition.

Do I still file a personal T1 after incorporating?

Yes. The corporation files a T2. You file a personal T1 reporting salary (T4) and/or dividends (T5) received from the corporation. Both returns are required every year. T2 Filing →

What about income splitting with my spouse?

Your spouse can be a shareholder and receive dividends, but TOSI rules may tax those dividends at top marginal rates unless your spouse is actively involved in the business or is age 65+. Consult your CPA.

Does incorporating affect my mortgage application?

Banks assess corporate owners differently. You may need 2 years of T2 returns and personal T1s showing sufficient income. Some lenders prefer to see salary via T4 over dividend-only income.

Can I hold investments inside my corporation?

Yes, but passive investment income above $50,000 reduces access to the SBD. A holding company structure can manage this. Holding Company Planning →

What is a holding company?

A separate corporation that holds shares of your operating company. Used to protect retained earnings, manage passive investments, and multiply the LCGE across family shareholders.

Should I incorporate for a rental property?

Usually no. Rental income does not qualify for the SBD. Corporate rental income is taxed at approximately 50.17% (Ontario refundable tax). Personal rates are often lower. Exceptions exist for large portfolios.

Should a freelancer incorporate?

If net freelance income consistently exceeds $60,000 and you can retain profits, yes. Below that, a sole proprietorship with good bookkeeping is simpler and cheaper.

What about WSIB and incorporated businesses?

Some industries require WSIB coverage. As an incorporated owner paying yourself salary, you may need to register and remit WSIB premiums depending on your industry classification.

Can I dissolve a corporation later?

Yes. File all outstanding T2s, settle HST, close the payroll account, distribute remaining assets and file Articles of Dissolution. Your CPA handles the full wind-down. Past Account Cleanup →

Does incorporating help with government grants?

Some programs require incorporation (SR&ED, IRAP, certain provincial grants). Others accept sole proprietorships. Check eligibility before incorporating solely for this reason.

What is the corporate annual return?

A separate filing from the T2. Ontario corporations file an annual return with the Ontario Business Registry. Federal corporations file with Corporations Canada. Fees: $20 to $60.

Do I need a business bank account?

Not legally required for sole props but strongly recommended. For corporations, it is effectively mandatory. The corporation is a separate legal entity and must keep its finances separate from personal.

Can a non-resident incorporate in Canada?

Yes. A non-resident can incorporate federally or in most provinces. At least 25% of directors must be Canadian residents (federal). Ontario has no residency requirement. Non-Resident Corp →

How do I get started with incorporation?

Book a free consultation. We review your income, expenses, goals and timeline. If incorporation makes sense, we handle everything: NUANS, articles, CRA registration, HST, payroll setup. Book Free Consultation →