To switch from sole proprietor to a corporation in Canada, you incorporate a new company, transfer your business assets into it (often using a Section 85 rollover to defer tax), open new CRA accounts, and wind down the sole proprietorship.
A sole proprietorship and a corporation are two different legal entities. You cannot convert one into the other, you incorporate a brand-new company and move the business into it. Done correctly, the move can be tax-deferred, protect you from liability, and open up tax planning that a sole proprietor cannot access. Done carelessly, transferring assets into the corporation can trigger an unnecessary tax bill. We handle the full transition through our incorporation services, structuring it so it is clean and tax-efficient.
The Steps to Switch From Sole Proprietor to Corporation
There is no government "conversion" process. The transition is a sequence of incorporation, asset transfer, account changes, and closing the old registration.
| Step | What Happens |
|---|
| 1. Incorporate a new corporation | Register federally or provincially, choose a name (or numbered company), and set up share structure. |
| 2. Set up the corporation's records | Directors, officers, shareholders, minute book and share issuance are established. |
| 3. Transfer business assets | Move equipment, inventory, goodwill and other assets into the corporation, often via a Section 85 rollover. |
| 4. Open new CRA accounts | The corporation gets its own business number, plus GST/HST, payroll and corporate income tax accounts as needed. |
| 5. Move contracts and banking | Bank account, contracts, licences and registrations are put in the corporation's name. |
| 6. Wind down the sole proprietorship | File a final personal business statement, close the sole prop's accounts, and cancel the registration. |
What Transfers, and the Tax to Watch For
When you move assets from yourself to your new corporation, the CRA generally treats it as a sale at fair market value. If those assets have grown in value, that can create a taxable gain, even though no cash changed hands. This is where a Section 85 rollover matters.
| Item | How It Is Handled |
|---|
| Equipment and vehicles | Transferred at elected amounts under Section 85 to defer tax on any gain. |
| Inventory | Moved into the corporation, valued appropriately on transfer. |
| Goodwill | Often the biggest hidden value; a rollover defers tax on its built-up value. |
| Business name | A consent is signed so the corporation can use the existing name, subject to stricter corporate naming rules. |
| Bank and contracts | Re-opened or re-assigned in the corporation's name. |
What is a Section 85 rollover? It is a joint election that lets you transfer eligible business assets to your corporation at an elected value rather than fair market value, deferring the tax that would otherwise arise on the built-up gain. It is the standard tool for incorporating an existing business cleanly. Tax Planning →
The trap to avoid: Simply "moving" a profitable sole proprietorship with valuable equipment or goodwill into a corporation without a proper Section 85 election can trigger tax on those built-up gains. The rollover has to be elected correctly and on time. This is the part you do not want to do alone.
Should You Incorporate at All?
Switching makes sense for many growing businesses, but not every one. Incorporation generally pays off when your business earns more than you need to live on (so profits can be retained and deferred at the lower corporate rate), when you want liability protection, or when you plan to bring in partners or investors. If your business is small and you draw out all the profit, the extra cost and filing may outweigh the benefit. We give you a straight answer on whether incorporating is worth it for your situation.
Case Study: Oakville Contractor Going Incorporated
An Oakville contractor operating as a sole proprietor had grown to strong six-figure profits and was paying tax at high personal rates on income he was not spending. We incorporated him, transferred his equipment and goodwill into the corporation using a Section 85 rollover so no tax arose on the transfer, set up the CRA accounts, and wound down the sole proprietorship. He now retains profits in the company and defers tax he previously paid every year.
Incorporated. Assets rolled over tax-free. Annual tax deferral achieved.
How We Handle the Whole Switch
We manage the transition end to end: incorporating the company, structuring and electing the Section 85 rollover, opening the corporation's CRA accounts, and closing the sole proprietorship correctly. You deal with one firm, the tax is handled properly, and nothing falls through the cracks. Our incorporation services and ongoing corporate tax filing keep you compliant from day one.
Thinking of Incorporating Your Business?
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Book Free ConsultationKnow Exact Fees within 2 MinutesFrequently Asked Questions
How do I switch from sole proprietor to a corporation in Canada?
You incorporate a new company, transfer your business assets into it (often using a Section 85 rollover to defer tax), open new CRA accounts under the corporation, and then wind down the sole proprietorship.
Can I convert my sole proprietorship into a corporation?
Not directly. A corporation is a separate legal entity, so you incorporate a brand-new company and move the business into it. There is no government conversion process.
Do I need to incorporate from scratch?
Yes. You register a new corporation, federally or provincially, then transfer the business in. The existing sole proprietorship registration does not carry over.
What is a Section 85 rollover?
A joint election that lets you transfer eligible business assets to your corporation at an elected value rather than fair market value, deferring the tax that would otherwise arise on the built-up gain.
Why do I need a Section 85 rollover?
Transferring assets to a corporation is normally treated as a sale at fair market value, which can trigger tax on any gain. The rollover defers that tax, which matters most for equipment and goodwill.
Will I be taxed when I move assets into the corporation?
Not if the transfer is structured with a proper Section 85 election. Without it, built-up gains on equipment, goodwill or other assets can be taxed even though no cash changed hands.
Can I keep my business name?
Usually, by signing a consent so the corporation can use the existing name. Corporate naming rules are stricter than for sole proprietorships, so the exact name is not always guaranteed.
What happens to my GST/HST account?
The corporation needs its own GST/HST account under its own business number. The sole proprietorship's account is closed as part of the wind-down.
GST/HST Registration →What happens to my payroll account?
If you have employees, the corporation opens its own payroll account and the sole proprietorship's account is closed. Employees move onto the corporation's payroll.
Payroll →Do I get a new business number?
Yes. The corporation receives its own business number, with its own GST/HST, payroll and corporate income tax program accounts as needed.
How do I close my sole proprietorship?
You report the final period of business income on your personal return, close the sole prop's CRA accounts, and cancel the business name registration with the province.
When should I incorporate?
Generally when your business earns more than you need to live on, so profit can be retained and deferred at the lower corporate rate, when you want liability protection, or when bringing in partners or investors.
Is incorporating always worth it?
No. If your business is small and you draw out all the profit, the added cost and filing can outweigh the benefit. We give you a straight answer for your specific numbers.
What are the tax benefits of incorporating?
Access to the lower small business tax rate on retained profits, tax deferral, salary versus dividend planning, and potential access to the lifetime capital gains exemption on a future sale.
Tax Planning →Does incorporating protect me from liability?
A corporation is a separate legal entity, which generally limits your personal liability for business debts and obligations, subject to exceptions such as personal guarantees and certain director liabilities.
Should I incorporate federally or provincially?
It depends on where you operate and your plans. Federal incorporation gives national name protection; provincial incorporation can be simpler for a single-province business. We advise which fits.
Can I use a numbered company instead of a name?
Yes. A numbered company is faster and avoids name searches. You can still register a trade name to operate under, separate from the legal numbered name.
How long does the switch take?
Incorporation itself is often quick. The full transition, including the asset transfer and account changes, depends on the complexity of your business and assets. We manage the timeline.
What happens to my business assets and equipment?
They are transferred into the corporation, typically at elected amounts under Section 85 so no tax arises on the transfer of any built-up gain.
What happens to goodwill?
Goodwill is often the largest hidden value in an established business. A Section 85 rollover defers tax on its built-up value when it moves into the corporation.
Do I need a minute book and share structure?
Yes. A corporation needs a minute book, directors, officers, shareholders and issued shares. We set this up as part of incorporation so the company is properly organized.
Will my contracts move automatically?
No. Contracts, licences, leases and registrations need to be assigned or re-issued in the corporation's name. We flag what needs to move so nothing is missed.
Do I need a new bank account?
Yes. The corporation needs its own bank account in its legal name, kept separate from your personal finances. Mixing the two undermines the liability protection.
Will I still file a personal tax return?
Yes. You file a personal T1 for the salary or dividends you take from the corporation, and the corporation files its own T2 corporate return.
T2 Filing →Should I pay myself salary or dividends after incorporating?
It depends on your income needs, CPP, and RRSP goals. We run a salary versus dividend analysis so your compensation is set up tax-efficiently.
Tax Planning →Can I incorporate myself online instead of using a CPA?
You can register the company online, but the registration is the easy part. The tax-critical steps, the Section 85 rollover and asset transfer, are where a CPA prevents a costly mistake.
How much does it cost to incorporate and switch?
We quote a fixed fee up front covering incorporation and the transition work, with government registration fees separate. All our fees include HST.
Are your fees inclusive of HST?
Yes. All quoted fees include HST, so the number you are quoted is the number you pay.
Do you serve businesses outside Toronto?
Yes. We incorporate and handle the full switch for businesses across the GTA and all of Ontario and Canada virtually, with the same flat-fee pricing.
How do I get started?
Book a free consultation or use our fee calculator. We confirm whether incorporating is worth it, then handle the incorporation, the rollover and the wind-down end to end.
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