Sole Proprietor vs. Corporation: Which Is Right for You?
Reviewed by EverStone CPA · August 2026
The most common question we hear from Canadian business owners. Here’s the honest, plain-English comparison — and the point where incorporating actually starts to pay off. EverStone CPA walks new BC business owners through this decision every week.
Quick answer: A sole proprietorship is taxed at the owner’s personal rates on all profit, while a corporation is a separate taxpayer that can retain earnings at lower small business rates and defer personal tax. Incorporating usually pays off once profit exceeds what the owner needs to live on. EverStone models both scenarios.
There’s no universal answer — it depends on your profit, your risk, and how much you take out personally. Here’s how the two stack up.
| Factor | Sole Proprietor | Corporation |
|---|---|---|
| Tax on profit | Your personal marginal rate (up to ~53.5% in BC) | ~11% small-business rate in BC on the first $500k, then deferred |
| Liability | You’re personally on the hook | Limited — the company is separate from you |
| Setup & cost | Low — just register | Higher — incorporation + annual T2 & filings |
| Paperwork | One T1 with a T2125 | Separate T2, bookkeeping, payroll/dividends |
| Best when | Profit ≈ what you need to live on | Profit exceeds your personal spending |
The short version
If you’re spending everything the business earns, a sole proprietorship keeps life simple. The moment you’re consistently leaving profit in the business, a corporation lets you defer a big chunk of tax and adds liability protection — that’s usually the tipping point. Want to see your own numbers? Try our incorporation savings calculator or book a free consult and we’ll tell you straight.
This is general information, not tax advice. Rates are approximate 2026 BC figures and change with income and circumstances.
Put numbers on the decision
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Sole proprietor vs corporation FAQ
Is it better to be a sole proprietor or incorporate in Canada?+
How much does incorporating save on taxes?+
What are the downsides of incorporating?+
Can I start as a sole proprietor and incorporate later?+
Does incorporating protect my personal assets?+
Do I still file a personal tax return if I incorporate?+
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Sources
The rates and thresholds behind this page. Rates change — check the source before relying on a figure.
- CRA — Corporation tax rates (federal and provincial)
- CRA — Personal income tax rates
- Province of BC — Personal income tax rates
General information, not advice. Have a CPA confirm it for your situation
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Decided incorporation is coming but not sure when? See the Just getting started for the setup sequence that follows.
Already decided incorporation is coming? When to incorporate deals with the timing, the triggers and the calendar mechanics.
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