There's no magic income number that automatically means you should incorporate, but most Canadian tax pros suggest considering it once you're consistently earning $40,000 to $50,000 per year in net business income. The real answer depends on your income level, province, business structure, and how much profit you want to reinvest versus take home. If you're earning below $30,000 annually, incorporation often costs more in accounting and compliance fees than it saves. Between $30,000 and $50,000, you'll want to run the numbers both ways. Above $50,000, incorporation usually starts paying for itself through tax deferral and income splitting opportunities. When you're self-employed as a sole proprietor, you pay tax on all your business income at your personal marginal tax rate. Once you incorporate, your business income is taxed at the corporate rate first (which varies by province but is often lower), and then you can decide whether to keep profit in the corporation or withdraw it as salary or dividends. This creates a window where money can grow tax-deferred inside the corporation. For example, if you earn $60,000 in Ontario as a sole proprietor, you might pay around 35-40% in combined federal and provincial tax.
There's no legal minimum, but financial sense usually starts around $40,000 to $50,000 in annual net business income. Below that, incorporation costs often exceed tax savings. Run the numbers with your accountant for your specific situation.
Initial setup typically costs $500 to $2,000 depending on whether you incorporate federally or provincially and whether you use a lawyer or online service. Annual compliance costs (accounting, tax returns, corporate filings) usually run $1,500 to $3,000 per year.
Yes, you can incorporate a part-time business. However, the same income thresholds apply. If your part-time business earns under $30,000 annually, incorporation usually isn't worth the extra compliance burden.
No. Each province sets its own small business corporate tax rate, ranging from roughly 10% to 15%. This difference significantly impacts whether incorporation saves you money, so check your specific province's rate.
You can't change your tax status retroactively for a year already filed. However, you can incorporate now and it will apply to your 2026 tax year onwards. Talk to your accountant about strategies if you're transitioning between structures.