Incorporation is one of the biggest decisions a small business owner can make.
The CRA doesn’t require most businesses to incorporate — but doing so can offer tax advantages and legal protection.
Here’s how to know when it’s the right time.
1. When Incorporation Makes Sense
You should consider incorporating if:
- Your business earns consistent profit
- You don’t need to take all the money out personally
- You want to separate personal and business liability
- You plan to reinvest in your business
- You want flexible ways to pay yourself (salary or dividends)
2. What Are the Benefits of Incorporating?
✔ Limited liability
Your personal assets are protected.
✔ Tax planning opportunities
Income splitting, dividends, small business deduction.
✔ Lower corporate tax rate
Ontario corporate tax is lower than most personal tax rates.
✔ More credibility
Banks, clients, and vendors trust incorporated companies more.
✔ Better long-term planning
You can keep profits inside the corporation for future growth.
3. When Not to Incorporate Yet
Incorporation might NOT be needed if:
- Your business is very new
- You are not yet profitable
- You plan to stay part-time or seasonal
- You need all the income personally
In these cases, staying a sole proprietor may be simpler and cheaper.
There’s no universal “best time” to incorporate — it depends on your income, risk level, and future plans. Talking to a CPA helps you understand whether incorporation will actually save you money or complicate things.
Thinking about incorporating?
Get professional guidance from Greg Cowan CPA in Waterloo:
https://www.gregcowancpa.ca