Sole Proprietorship vs Incorporation

A sole proprietor reports business income on their personal T1 (form T2125) and pays full marginal personal tax — federal up to 33% + provincial — plus both halves of CPP. A CCPC is a separate legal entity that pays corporate tax (~12% combined on the first $500,000 thanks to the small business deduction), then you pay personal tax only on what you withdraw as salary or dividends. The corp form lets you defer personal tax on retained earnings.

Most accountants suggest incorporating becomes worthwhile at roughly $80,000–$120,000 of stable annual profit you don't fully draw out. Below that threshold, the ~$1,500–$3,000 annual incorporation overhead (separate corporate return, bookkeeping, GIFI schedules) usually exceeds the tax-deferral savings. Above $200,000 retained, the deferral benefit easily covers the costs and limited liability becomes a meaningful additional benefit.

No — Canada's integration system is designed so total tax is similar whether income flows directly as proprietor income or through a CCPC paid out as salary or dividends. The benefit only emerges when you retain earnings inside the corp (paying ~12% corporate rate now and personal tax only when withdrawn later). If you draw 100% of profit each year, the only material savings come from CPP avoidance via dividends — and even that is partially offset by the loss of CPP retirement benefits.

A CCPC is a separate legal entity, so corporate creditors generally cannot pursue your personal assets — unlike a sole proprietor, where you and the business are legally one person. However, banks routinely require personal guarantees from CCPC owners on lines of credit, leases, and major contracts, which sidesteps the corporate veil. Limited liability is most valuable for businesses with product, professional, or third-party negligence risk — not pure consulting.

The small business deduction reduces the federal corporate tax rate from 15% to 9% on the first $500,000 of "active business income" (the SBD limit) for a CCPC. Combined with provincial small-business rates, the effective rate is typically 9–14% depending on province. Above $500,000, the corporate rate jumps to ~26–31% combined. Multiple associated CCPCs share one $500,000 SBD between them (no doubling up).

If a CCPC earns more than $50,000 of passive investment income in a year (interest, dividends, capital gains from investments — not from active business), the available SBD is reduced by $5 for every $1 above $50,000, hitting zero at $150,000 of passive income. This is the federal government's mechanism to discourage using a CCPC as an investment-holding vehicle. Active business income is unaffected.

Less than it used to. Pre-2018, dividends could be paid to non-active spouses or adult children to split income. The 2018 TOSI rules tax most family-member dividends at the highest marginal rate. Exclusions remain (spouses 65+, family members working ≥20 hrs/wk in the business, excluded shares). For pure consulting/services with one active owner, TOSI typically eliminates the income-splitting case for incorporation.

Yes. You can transfer the existing sole-proprietor business assets into a newly incorporated CCPC using a section 85 rollover (Form T2057) — a tax-deferred transfer that preserves the cost base. Most owners do this at calendar year-end to keep tax accounting clean. Allow 4–8 weeks for the rollover, federal and provincial registrations, GST/HST account migration, and bank account changes. Engage an accountant — getting the rollover wrong creates a deemed disposition.