Should I incorporate or stay a sole proprietor?
Incorporation buys liability protection and tax deferral at the cost of complexity. The tipping point is usually when you earn more than you spend personally — or when the risk gets real.
A sole proprietorship is you; a corporation is a separate legal person. That one difference drives everything else.
What incorporation gets you
Liability protection: business debts and lawsuits generally stop at the corporation, not your house. Tax deferral: profit left in the corporation is taxed at the small business rate (roughly 12% in Ontario) instead of your personal marginal rate — powerful if you earn more than you need to live on. Optionality: salary-vs-dividend planning, income timing, and a cleaner story for lenders and buyers.
What it costs you
Incorporation fees, a corporate minute book, a separate T2 return every year, and real bookkeeping. The corporation’s money is not your money — casual draws become shareholder-loan problems.
The honest tipping points
Incorporate when profits exceed what you withdraw personally, when clients or contracts require it, or when the work carries real liability. Staying simple is legitimate below those lines — incorporation is a tool, not a trophy.
This is general information, not tax advice for your situation. Book a call and a Canadian accountant will give you the answer for your business.
Common questions
At what income does incorporation make sense?
There is no magic number; the driver is how much profit stays in the business. If you spend everything you earn, the deferral advantage mostly disappears and you are paying for complexity. Run your numbers with an accountant before deciding.
I'm already incorporated but it feels like overkill. Did I make a mistake?
Not necessarily — liability protection and contract requirements justify plenty of corporations that don't need the tax deferral yet. But the books and the T2 are non-optional now, so make the structure earn its keep with proper planning.