Reasons to Incorporate

Net income of a sole proprietorship or partnership is taxed directly in the hands of the owner(s). A corporation, on the other hand, is a separate taxpayer with its own tax rates.

A corporation, incorporated in Canada, and controlled by private corporations or individuals who are Canadian residents will usually qualify as a "Canadian-controlled private corporation". This status allows it to claim the small business deduction, a reduction of the normal corporate income tax rate on the first $200,000 of a corporation's annual taxable income earned from carrying on an active business in Canada.

Another significant tax advantage to incorporation of a small business is the ability to claim the $500,000 capital gains exemption on a sale of the business. Where the shares qualify, the owner(s) can sell them and the first $500,000 of capital gains are exempt from tax.

Additional Reasons to Incorporate Include:

• Owners can pay themselves through payroll - no more surprises when you file your personal tax return!
• Simplified vehicle expense accounting - simply pay yourself a per kilometer (tax free) allowance for business use of your personal vehicle.
• Defer taxable capital gains on certain depreciable assets by transferring to corporation.
• Protection of business name.
• Reduction or elimination of potential personal liability arising from business activities.
• Simplified transfer of business to heirs and successors.

CorpCanada Services Inc., 2-200 Colonnade Road South, Ottawa, Ontario K2E 7M1

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The information presented on this site should not be construed as legal, tax or accounting advice. You should consult with professional advisors familiar with your particular factual situation for advice concerning specific tax or other matters before making any decision.