Incorporation is the legal process of forming a corporation, a separate legal entity from its owners, giving limited liability and access to corporate tax rates.
Incorporating creates a distinct legal person that can own assets, sign contracts and be taxed in its own right, separate from you. The two headline benefits are limited liability, shielding your personal assets from most business debts, and access to corporate tax rates and deferral through the small business deduction.
You can incorporate federally or provincially. The trade-off is added compliance: a separate T2 return, financial statements, corporate records and payroll if you take a salary. Incorporation usually pays off once profit consistently exceeds what you draw personally, or when liability protection or a future sale matters.
A consultant earning far more than she spends incorporates. Surplus profit is now taxed at roughly 12% inside the company instead of up to 53% personally, and it can be retained and invested until she draws it in a lower-income year.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
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