MJ McClain Airdrie Accountant Sole Proprietor Advice

Financial Guidance

Should I incorporate my business?

This is a question we are asked often. There are two main reasons for incorporating:

  • Potential to reduce taxes
  • Limited liability

The potential to reduce taxes is a legitimate reason to incorporate, but only once you reach a certain level of profitability. If you are earning enough profit in your business, that you can leave some behind – in the business – to further build, then incorporation makes sense.

Limited liability is something to think about regardless of the tax implications. Having the corporate structure in place limits any liability from a potential law suit or debt liabilities to the assets of the company. In other words, creditors can’t come after your house.

Depending on the type of business you’re in, this may or may not be a concern to you. There are some types of CRA debt that do follow the directors of the corporation.

As a sole proprietor, the following applies to you:

  • You can apply losses against other forms of income
  • Reduced accounting and legal fees upon set up

As a corporation, the following applies to you:

  • Income splitting
  • Profits (to grow the business) taxed at a reduced rate
  • Access to the small business deduction
  • Limited liability
  • You are a separate legal entity that outlives the individual
  • Make use of $800,000+ capital gains deduction
  • Private health care plans to provide tax-free benefits

Questions? We are happy to help. Contact us today.