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Should I incorporate?

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Six questions covering income, stability, liability, reinvestment and residency. It runs entirely in your browser and sends nothing anywhere, and the result is a view rather than a verdict.

A view is not advice. When you want the answer worked against your own numbers, an email enquiry costs nothing.

Quick answer: Incorporating is not only a tax question, and the tax answer is only decisive at some income levels. This weighs the five things that actually move the decision, then points you at the calculator for the dollars.

Your answers stay in your browser. The assessment runs entirely on your device: there is no account, your answers are never transmitted, and we never see them unless you choose to send them using the optional email box at the end. Like every page on this site, this one loads Google Analytics, which records the visit but cannot see anything you select here.

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Incorporating is three decisions, not one

Most people arrive at this question having been told that incorporating saves tax. Sometimes it does. But the tax answer is only one of three, and for a good number of businesses it is not the one that decides it.

The first decision is deferral. A Canadian-controlled private corporation pays a low rate on active business income up to its business limit, but only on income left inside. Salary or dividends you take are taxed personally, with a combined result broadly similar to staying unincorporated. So the tax case is a case for retaining earnings; draw out everything and there is little to defer.

Salary versus dividends compared: salary builds RRSP room and CPP and is deductible to the corporation but requires a payroll account; dividends need no payroll and carry no CPP, and are taxed through the dividend tax credit.
The trade-off, side by side. Which one wins depends on your year, not on a rule of thumb.

The second decision is liability. A corporation is a separate legal person, which can matter more than tax for trades with physical risk, large contracts or work that could damage a client’s property. It does not cover your own negligence, and a personal guarantee undoes it for that debt.

The third decision is cost and administration: a T2 return, financial statements, separate books, a bank account and annual filings. That cost does not scale down, and below a certain level of retained income it exceeds the benefit.

What actually moves the answer

Income above what you draw is the strongest indicator, because it makes deferral possible. Stability is next: a steady surplus justifies the cost, while an erratic year can leave you paying for an unused structure. Liability exposure can override both. Planned reinvestment points the same way as retained income. Provincial residency changes the size of the answer, rarely its direction.

One case cuts the other way. If clients require you to incorporate and you would otherwise be their employee, the personal services business rules may apply: no small business deduction or general rate reduction, a further 5% tax and restricted deductions. Incorporating can then leave you worse off, so check first.

What to do with the result

For the dollars, run the incorporation tax calculator with your figures; it compares sole-proprietor tax with the corporate rate on income you leave in. Then weigh the non-tax reasons it cannot show.

This is one of six decisions that shape what an owner-managed business pays; the others are collected on the decision guide.

Sources

Every condition and factor above is drawn from the CRA’s own published guidance, not from interpretation:

Questions people ask

How much do I need to earn before incorporating is worth it?
No single income threshold exists, because the benefit comes from income you leave in the corporation rather than income you earn. Someone earning a great deal and drawing all of it out gains little; someone earning less and retaining most of it can gain more. Run the calculator on the amount you would actually retain, not on revenue.
Does incorporating protect my personal assets?
Partly. A corporation is a separate legal person, so its debts are generally its own. But it does not protect you against your own negligent acts, and it does not help with any debt you have personally guaranteed, which most lenders and many landlords will ask for.
Can I incorporate part-way through a year?
Yes. It creates two reporting periods for that year — unincorporated up to the transfer, then the corporation after it, and the transfer of assets into the corporation needs care to avoid triggering tax. It is worth planning rather than doing on the last day of a quarter.
Is the decision different in British Columbia?
The structure of the decision is the same everywhere in Canada; the numbers differ. Corporate and personal rates vary by province, so residency changes how large the advantage is. Our calculator uses BC rates.
What if incorporating would make me a personal services business?
Then the usual advantages do not apply: no small business deduction, no general rate reduction, full corporate rates plus an additional 5% tax, and restricted deductions. If most of your income comes from one client whose work you would otherwise do as an employee, run the PSB risk assessmentA free tool that walks the factors CRA weighs for an incorporated contractor first.
Does anything I enter get sent to you?
No. It runs entirely in your browser. The optional email box at the end is the only thing that sends anything, and only if you submit it.

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General information, not tax advice. This tool gives a general indication from your answers, not a determination of your tax position or a professional relationship, and the CRA decides on the full facts. Speak to a CPA before acting — send an enquiry. For the side-by-side, see incorporate vs sole proprietor.

Shareholders agreements: what they should cover on tax When to incorporate timing and triggers All calculators and tools Send an enquiry Incorporation tax calculator PSB risk assessment Starting a business Put real numbers against the setup and annual costs Opening the business bank account

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