How Will Your Small Business Tax Rate Change If You Incorporate?

Jun 13, 2018

Canadian small business owners have a lot to worry about. Along with surviving in a competitive market, we have taxes to worry about.

Fortunately, there are ways to reduce your business taxes in Canada. Depending on your business and personal finances, one of these ways could be incorporating your business. If you think about incorporating your business and want to learn more, here is more information on the process.

What Is Incorporation?

At the most basic level, incorporation refers to the process of turning a business into a corporation. Once incorporated, your business would be its own legal entity, and be responsible for its own debt and obligations.

There are a number of advantages of this process, but you will first need to determine a name for your Corporation, unless you are registering as a Numbered Company. Even, if you’ve already been in business as a Sole Proprietorship or General Partnership, you will still need to go through the process to ensure the name is available for incorporating.

An Identity

If you have a totally unique name or business, then the name of your business may not have any similar names currently registered, but you will still need to search your business name to see if its is available.

Once you’ve determined that the name you want to use is available, you’ll need to reserve it with a NUANS Name Reservation Report. This report is the official name search document required in many jurisdictions across Canada, including Ontario, when registering a Named Corporation. The report also reserves the name for you to incorporate for 90 days.

How Can Incorporating Reduce My Small Business Taxes?


Your Personal Taxes

There are a few ways for this to work. The first is the most simple: the difference between personal and corporate tax rates. In general, if your personal tax rate is higher than your corporate tax rate you can take advantage of the corporate business structure.

If your company is earning more than you need to live on, saving money can be easier. Just take out the amount of money you need to live on, and keep the rest in your corporation for growing your business.

In this scenario, if your personal tax rate is lower than your corporate tax rate, you can save taxes by keeping more income in the corporation.

Another possible option is to pay yourself through dividends instead of a salary. Dividends are taxed at a preferential rate which could reduce your personal taxes.

As with any tax planning strategy, it is important to discuss it with an accountant, who can properly advise you, so you can decide on a strategy that works best for your business and personal finances.


If you’re looking to incorporate, make sure to start the process with our Free NUANS Preliminary Search, which lets you search all your business name ideas for free to see what is available for you to incorporate.


Free NUANS Preliminary Search
Free NUANS Preliminary Search
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