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Why should I consider incorporating my business?

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 $500,000 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