Question 1

At what income should a Canadian freelancer or contractor incorporate?

Accepted Answer

Most Canadian tax advisors suggest incorporation becomes beneficial when your business net income exceeds $80,000–$100,000 per year and you don't need all the money personally. At that point, a CCPC pays only 9% federal corporate tax (plus ~3–4% provincial small business rate) on the first $500,000 of active business income, compared to 40–53% marginal personal tax rates. The tax deferral benefit is the key driver — money left in the corporation grows faster. Use this calculator to see the exact breakeven point for your province.

Question 2

What are the advantages of incorporating in Canada vs. being a sole proprietor?

Accepted Answer

Key advantages of incorporating (CCPC): (1) Lower corporate tax rate — 9–13% on active business income up to $500K vs. 40–53% personal marginal rates; (2) Tax deferral — leave money in the corporation and defer personal tax; (3) Limited liability — personal assets protected from business debts; (4) Lifetime Capital Gains Exemption (LCGE) on qualifying small business shares (~$1.25M); (5) Income splitting opportunities. Drawbacks include: higher accounting costs ($1,500–$4,000+/year), administrative burden, loss of RRSP contribution room on dividends.

Question 3

Should I pay myself a salary or dividends from my Canadian corporation?

Accepted Answer

Both strategies have trade-offs. A salary: creates RRSP contribution room, contributes to CPP (both employee and employer portions), is deductible to the corporation, and helps justify a reasonable compensation level. Dividends: no CPP contributions (saves ~$6,000+/year but reduces future CPP benefits), lower personal tax than salary at higher incomes due to the dividend tax credit, simpler payroll. Most owner-managers use a mix — enough salary to maximize RRSP room ($31,560/year in 2025 requires ~$175,333 salary), then dividends for the rest.

Should You Incorporate? Canadian Tax Comparison Tool

Sole Proprietor

Canadian Controlled Private Corporation (CCPC)

Other Factors to Weigh

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