When does it make sense to incorporate?
Incorporation can provide useful tax and business advantages, but it also creates additional costs, filing obligations, and administrative work.
It may be worth considering when:
The business is earning more than you need personally
Leaving some income in the corporation may provide a tax deferral when the corporation's tax rate is lower than your personal tax rate.
The benefit depends on how much can remain in the business, how the funds will be used, and when you expect to withdraw them.
You want to separate business and personal activities
A corporation is a separate legal entity. This can help establish a clearer division between the business's finances and the owner's personal affairs.
Incorporation does not eliminate every form of personal liability, so legal advice may also be required.
You are adding an owner or planning for growth
The share structure should reflect who owns the business, how decisions will be made, and how future ownership changes may be handled.
It is usually easier to consider these issues when the corporation is formed than to correct the structure later.
A client or contract requires a corporation
Some consultants, IT contractors, and professionals incorporate because a client or agency requires them to operate through a corporation.
The tax benefits should still be assessed separately, particularly where personal services business rules could apply.
What incorporation support includes
Initial tax and accounting discussion
We review the nature of the business, expected income, personal cash needs, ownership, and future plans.
This helps identify whether incorporation is appropriate and what accounting or tax issues should be considered before proceeding.
Coordination of the share structure
The corporation's shares determine ownership and may affect dividends, voting rights, succession planning, and a future sale.
The legal share structure is prepared by a lawyer or incorporation service. We provide accounting and tax input where needed so the structure reflects the intended ownership and future plans.
CRA account registrations
We can help determine which CRA accounts the corporation requires, including:
- Corporate income tax
- GST/HST
- Payroll deductions
- Import and export accounts, where applicable
Not every corporation needs every account immediately.
Initial accounting setup
A separate corporate bank account and organized accounting records should be established from the beginning.
We can help set up QuickBooks Online, design the chart of accounts, and explain how owner contributions, expenses, reimbursements, salary, and dividends should be recorded.
Filing and payment guidance
New corporations often need help understanding:
- Corporate tax filing deadlines
- Tax payment deadlines
- GST/HST filing requirements
- Payroll remittance obligations
- Instalment requirements
- Annual corporate legal filings
We explain which obligations apply and how they fit together.
Starting with an existing corporation?
Sometimes a corporation has already been registered before accounting or tax advice is obtained.
We can review the existing setup, including:
- Incorporation documents
- Share ownership
- CRA program accounts
- Fiscal year-end
- Initial transactions
- Shareholder balances
- Bookkeeping records
Where legal changes are required, we can identify the issue and coordinate with your lawyer.
Incorporation for consultants and IT contractors
Incorporation can work well for consultants and contractors, but the result depends on the working relationship and how the business operates.
We review factors such as:
- Whether the corporation has one main client
- Control over the work performed
- The ability to hire assistants or subcontractors
- Financial risk
- Ownership of tools and equipment
- Opportunities to earn profit
- Personal services business exposure
This helps determine whether the expected corporate tax treatment is reasonable and what records should be maintained.
Incorporation and SR&ED planning
Technology, software, engineering, and manufacturing businesses may begin research and development activities early in their operations.
Setting up the accounting records properly can make it easier to identify wages, contractor costs, materials, and other expenditures that may relate to a future SR&ED claim.
The corporate structure and bookkeeping should support the claim without making the initial setup unnecessarily complicated.
How the process works
1. Discuss the business
We review what the business does, who will own it, expected income, and the reason for incorporating.
2. Identify the required setup
We outline the accounting and tax registrations required and flag any matters that should be discussed with legal counsel.
3. Coordinate the incorporation
The legal incorporation is completed, and the required CRA accounts and accounting records are established.
4. Prepare for ongoing filings
You receive guidance on bookkeeping, tax deadlines, GST/HST, payroll, and the information needed for the first corporate year-end.
