Should I Incorporate My Side Hustle in Canada 2026?
Updated
Sole Proprietorship vs Corporation
Feature
Sole Proprietorship
Corporation
Legal status
You personally
Separate legal entity
Liability
Unlimited personal liability
Limited to corporate assets
Tax return
Report on personal T1 (Form T2125)
Separate T2 corporate return
Tax rate
Personal marginal rate (20-53%)
Small business rate ~12.2%
Setup cost
$60-$100 (business registration)
$1,000-$2,500
Annual accounting cost
$200-$800
$1,500-$3,000
Income splitting
Limited
Yes (pay family members, dividends)
Retain earnings
No (all taxed personally in year earned)
Yes (leave in corp at low rate)
CPP contributions
Required (both employer + employee share)
Can choose salary vs dividends
Credibility/perception
Individual
More professional
When to Incorporate
Situation
Incorporate?
Why
Net income under $30,000
No
Costs exceed tax benefits
Net income $30,000-$60,000 (need all the money)
Probably not
If you withdraw everything, no tax savings
Net income $60,000-$80,000+ (can leave some in corp)
Consider it
Tax deferral starts to be meaningful
Net income $100,000+
Yes
Significant tax deferral and planning opportunities
Need liability protection
Yes (any income level)
Protects personal assets
Want to income split with spouse
Yes
Pay dividends to lower-income spouse
Plan to grow the business
Yes
Better structure for growth, hiring, contracts
Tax Comparison: Sole Prop vs Corporation
Scenario: $100,000 Net Business Income (Ontario)
Sole Proprietorship (All Personal)
Item
Amount
Business income
$100,000
CPP (self-employed, both shares)
-$7,735
Taxable income
~$100,000
Federal + Ontario tax
~$23,000
CPP premiums
~$7,735
Total tax + CPP
~$30,735
Take-home
~$69,265
Corporation (Leave $40K Inside Corp)
Item
Amount
Corporate income
$100,000
Pay yourself salary
$60,000
Corporate tax on remaining $40,000 (12.2%)
$4,880
Personal tax on $60,000 salary
~$10,500
CPP on $60K salary (employee share)
~$3,867
Total tax + CPP
~$19,247
Take-home (personal)
~$45,633
Retained in corp
~$35,120
Tax deferred
~$11,488
The $35,120 retained in the corporation is available for business investment, corporate savings, or future withdrawal at a time when your personal tax rate is lower.
Tax Deferral Advantage
Net Income
Tax as Sole Prop
Tax with Corp (leave 40% in corp)
Annual Deferral
$60,000
$12,000
$9,500
$2,500
$80,000
$18,000
$13,000
$5,000
$100,000
$30,700
$19,200
$11,500
$150,000
$48,000
$30,000
$18,000
$200,000
$68,000
$42,000
$26,000
Deferral is not permanent tax savings — when you eventually withdraw from the corporation, you pay personal tax. But deferral lets the money grow tax-efficiently inside the corp.