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Tickle & Compass
Business tip
Neither is better. It depends on how much profit you keep, how much risk you carry, and what you're willing to pay in paperwork.
Side by side
Sole proprietor
You and the business are the same. One personal tax return. Cheap and quick to start.
Corporation
A separate legal entity that owns the business. Files its own tax return (T2) every year, plus an annual provincial return.
Liability
Sole proprietor
Business debts and lawsuits can reach your personal assets.
Corporation
Generally limited to what the corporation owns. But personal guarantees on loans or leases, and your own negligence, still follow you.
The tax hook
A Canadian-controlled private corporation pays a reduced rate on its first $500,000 of active business income — federal 9% plus a provincial rate (2% in Alberta, so about 11% combined). The limit is shared with any associated corporations. Personal rates on the same profit can be much higher.
The fine print
Take money out and you pay personal tax on it — as salary or dividends. The real benefit is deferral: profit you leave in the corporation is taxed at the low rate until you need it.
Paying yourself
Salary
Deductible to the corporation. Builds RRSP room and CPP entitlement. Means running payroll.
Dividends
No payroll, but no RRSP room and no CPP contributions. Taxed with the dividend tax credit.
The cost
Incorporation fees, annual returns, bookkeeping, and usually an accountant every year. If profit is small, those costs can outweigh the tax savings.
Tickle & Compass
profit clearly exceeds what you spend to live, you carry real liability risk, you want to leave money in the business, or you're planning to hire. A numbered company can still trade under a registered business name.
Sole proprietor basics →General information, not tax, legal, or financial advice. Rules vary by province and change — confirm with an accountant.
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