Switching From Sole Prop to Corporation

Business tip

Switching from sole prop to corporation

How to move an existing business into a new corporation.

Signs it may be time

The usual triggers.

Profit clearly above what you spend to live, real liability risk, plans to hire, a client or contract that requires a corporation, or a wish to leave money in the business.

What actually happens

You don't convert. You set up something new.

The corporation is a separate legal entity with its own tax return, bank account, and business number. You incorporate, then move the business into it.

Moving assets in

A tax-deferred transfer is possible.

You can transfer equipment and other property into the corporation, and a section 85 election (form T2057) can defer tax on the transfer. The elected amount matters, so get an accountant's help.

Update everything

Change the name on everything.

Contracts, licences, insurance, bank accounts, invoices, and your website's legal name should all show the corporation. The corporation generally needs its own CRA and GST/HST accounts.

Final sole-prop year

Two tax returns for one year.

Income earned before the switch is reported on your personal return, and income after it belongs to the corporation. Choosing the switch date is worth planning.

Timing

Many people switch at the start of a tax year.

A clean start date keeps the paperwork simpler, since you're not splitting a year between two entities.

Tickle & Compass

Plan it with an accountant and a lawyer.

The tax deferral and the legal paperwork are where mistakes are expensive.

How incorporating works →

General information, not tax, legal, or financial advice. Rules vary by province and change — confirm with an accountant.