Should I incorporate my business in Canada?

Generally consider incorporating when earning $75,000-$100,000+ or if you need liability protection. Below that, the costs and complexity of incorporation may not be worth the tax savings.

What is the tax advantage of incorporating in Canada?

Corporations pay only 12-15% on the first $500,000 of active business income (small business rate) vs personal rates of 30-50%+. The savings come from tax deferral when you leave money in the corporation.

How much does it cost to incorporate in Canada?

Initial incorporation costs $1,000-$3,000. Annual maintenance is $1,500-$5,000+ for accounting, corporate tax returns, and filings. Total ongoing cost is typically $2,000-$5,000/year minimum.

Can I get a mortgage if I am self-employed or incorporated in Canada?

Yes, but the process is different. Self-employed and incorporated Canadians typically need 2 years of tax returns (T1 Generals and NOAs) to verify income. Lenders may use your net income average over 2 years. Incorporated borrowers can also use corporate retained earnings to strengthen their application. B-lenders offer stated-income programs with higher rates if you cannot fully document income.

What is the difference between salary and dividends when incorporated?

Salary is tax-deductible to the corporation, generates RRSP contribution room, and requires CPP contributions. Dividends are not deductible to the corporation, do not generate RRSP room, and have no CPP cost. Most incorporated Canadians use a mix: salary up to $60K–$80K for RRSP room, and the rest as dividends to minimize CPP costs.

Self-Employed vs Incorporated Canada 2026 | Which is Best?

The key decision for self-employed Canadians earning $75,000–$100,000+: should you incorporate? The small business corporate tax rate of 12–15% is dramatically lower than personal rates of 30–53%, but the real benefit comes from tax deferral — leaving money in the corporation to invest and compound at the lower rate. Below $75K in net income, the extra $3,000–$5,000/year in accounting and maintenance costs often eats up the savings.

Quick Comparison

Factor	Sole Proprietor	Incorporated
Setup cost	$0-$100	$1,000-$3,000
Annual cost	$500-$1,500	$2,000-$5,000+
Tax rate	Personal rates	12-15% (small business)
Liability	Unlimited personal	Limited to corporation
Complexity	Simple	Complex
Best for income	Under $75K	Over $100K+

Tax Comparison

Personal Tax Rates (Combined Federal + Provincial)

Taxable Income	Ontario	BC	Alberta
$50,000	~25%	~23%	~25%
$100,000	~35%	~32%	~31%
$150,000	~43%	~39%	~38%
$200,000+	~53%	~53%	~48%

Corporate Tax Rates

Income Type	Federal	Provincial	Combined
Small business (first $500K)	9%	3-4%	12-15%
General rate (over $500K)	15%	8-12%	23-27%

Tax Savings Example

Scenario	Net Income	Sole Prop Tax	Corp Tax (left in corp)
Self-employed	$100,000	~$28,000	~$12,500
Self-employed	$150,000	~$53,000	~$19,500
Self-employed	$200,000	~$82,000	~$26,500

Catch: When you pay yourself from the corporation, you pay personal tax again.

How Corporate Tax Deferral Works

The Tax Integration System

Step	Tax Event
1. Corp earns income	12-15% corporate tax
2. Money stays in corp	No additional tax
3. Pay yourself salary	Salary deducted from corp, taxed personally
4. Pay yourself dividends	Dividend taxed personally (with credit)

Deferral vs Savings

Strategy	Tax Outcome
Leave money in corp	Tax deferred (12-15% now, more later)
Pay out everything	Roughly same as sole prop (integrated)
Some in corp, some salary	Optimize each year

Integration means: Total tax on income paid out is designed to equal personal rates. But deferral is valuable.

When to Incorporate

Consider Incorporating If…

Factor	Threshold
Net income	$75,000-$100,000+
Leave money in business	Yes (don’t need it all)
Liability risk	Medium to high
Business loan needed	Often required
Plan to sell business	Easier as corporation
Multiple owners	Cleaner structure

Stay Sole Proprietor If…

Factor	Situation
Net income	Under $75,000
Withdraw all income	Need it all personally
Simple business	Low complexity
Low liability	Service business
Short-term/side gig	Not worth setup

Cost Comparison (Annual)

Sole Proprietor Costs

Expense	Cost
Business registration	$0-$60
Accounting (tax prep)	$300-$1,000
Bookkeeping	$0-$1,200
HST filings	$0-$500
Total	$300-$2,760

Incorporated Costs

Expense	Cost
Incorporation (one-time)	$1,000-$3,000
Corporate tax return (T2)	$1,000-$3,000
Personal tax return	$200-$800
Bookkeeping	$1,200-$3,600
Year-end financials	$500-$2,000
Annual corporate filings	$20-$50
Registered agent (if needed)	$150-$300
Annual total	$3,000-$10,000

Break-Even Point

Factor	Calculation
Extra cost for corp	~$3,000/year
Tax deferral rate	~20% (difference in rates)
Break-even income	~$15,000 (where deferral covers costs)

But incorporation makes more sense at higher incomes for meaningful deferral.

Liability Protection

Sole Proprietor

Risk	Protection
Business debts	Personal liability
Lawsuits	Personal assets at risk
Client claims	Personal exposure

Incorporated

Risk	Protection
Business debts	Limited to corporate assets*
Lawsuits	Personal assets protected*
Personal guarantees	Still personally liable

*Directors can still be personally liable for certain obligations (payroll, HST, etc.)

When Liability Matters

Business Type	Liability Risk
Consultant/freelancer	Low-medium
Contractor (construction)	High
Product-based	Medium-high
Healthcare services	High
Software/tech	Low-medium

Paying Yourself: Salary vs Dividends

Salary

Pros	Cons
RRSP contribution room	Payroll costs (CPP)
EI benefits (if opted in)	More administration
Predictable income	Corp tax on profit
Tax-deductible to corp	Taxed immediately

Dividends

Pros	Cons
No CPP contributions	No RRSP room generated
Simpler administration	Not deductible to corp
Flexible timing	Integration not perfect
Lower personal tax rate	No EI benefits

Optimal Mix

Situation	Strategy
Want RRSP room	Salary up to needed room
Want to minimize CPP	Mostly dividends
Need EI benefits	Enough salary to qualify
Typical approach	Salary up to $60K-$80K, rest dividends

Business Structures Compared

Federal vs Provincial Incorporation

Factor	Federal	Provincial
Name protection	Canada-wide	Province only
Operating area	All provinces	Home province (+registration elsewhere)
Annual filings	Federal + provincial	Provincial only
Cost	Higher	Lower
Complexity	More	Less

Types of Corporations

Type	Best For
Provincial corporation	Operating in one province
Federal corporation	Multi-provincial operation
Professional corporation	Doctors, lawyers, accountants
Holding company	Asset protection, income splitting

Income Splitting Opportunities

Paying Family Members

Strategy	Rule
Salary to spouse	Only if they do actual work
Dividends to spouse	TOSI rules limit this
Hiring children	Reasonable for work done

Tax on Split Income (TOSI)

Situation	TOSI Applies?
Spouse not working in business	Yes (taxed at top rate)
Spouse significantly involved	No
Adult children not working	Yes
Adult children working	No

TOSI rules (since 2018) significantly limit income splitting.

When to Incorporate Checklist

Question	If Yes → Incorporate
Earning $100,000+?	Strong reason to
Can leave $25K+ in corp annually?	Major tax deferral
Liability concerns?	Legal protection
Planning to sell business?	Better exit options
Need business financing?	Often required
Multiple business owners?	Cleaner structure

How to Incorporate

Steps

Step	Action	Cost
1	Choose name (NUANS search)	$50-$100
2	File articles of incorporation	$200-$500
3	Create corporate documents	Inc. in step 2 or $500+
4	Get business number (CRA)	Free
5	Open corporate bank account	Free
6	Set up payroll (if salary)	Free-$300

DIY vs Lawyer

Option	Cost	Best For
Online service	$500-$1,000	Simple situations
Accountant	$1,000-$2,000	Tax planning included
Lawyer	$1,500-$3,000	Complex situations