Should I Incorporate?

Most BC business owners start to see a meaningful net benefit once their business income exceeds $100,000 and they don't need to draw all of that income personally. The key driver is the gap between what you need to live on and what the business earns — the larger that gap, the more income can be sheltered inside the corporation at the 11% small business rate instead of your personal marginal rate, which can exceed 40%.

It is a deferral, not a permanent elimination. When the corporation eventually pays out retained earnings to you — as salary, dividends, or on wind-up — you pay personal tax at that time. The advantage is that in the meantime the full pre-personal-tax amount has been compounding inside the corporation. The longer the deferral and the higher your personal rate today vs. at withdrawal (e.g. in retirement), the greater the lifetime benefit.

One exception — the Lifetime Capital Gains Exemption (LCGE): If your corporation qualifies as a Qualified Small Business Corporation (QSBC), you may be able to sell your shares and shelter a significant portion of the capital gain from tax entirely using the LCGE — up to $1,250,000 in 2026. This is a permanent tax saving, not just a deferral, and is one of the most powerful tax planning tools available to incorporated business owners in Canada. Eligibility rules are strict, so speak with a CPA well in advance of any planned sale.

Running a corporation requires a separate corporate tax return (T2) in addition to your personal return. Most accountants charge an incremental fee for this — typically $2,500–$5,000/year depending on complexity. This calculator asks for the increase over what you're already paying for your personal return. If you currently pay $500/year for tax prep and expect to pay $3,000 after incorporating, enter $2,500 as the incremental increase.

This calculator uses the combined federal and BC small business rate of 11% — made up of the federal small business rate of 9% and the BC provincial rate of 2%. This applies to active business income up to the $500,000 small business limit. Income above $500,000 is taxed at the general corporate rate, which is significantly higher. The SBD is also reduced or eliminated for associated corporations and in some other situations — your CPA can confirm eligibility.

Yes — several situations can reduce or eliminate the benefit:

A CPA can weigh these factors for your specific situation before you commit to incorporating.

Yes — and it's often the first tool to maximize before considering incorporation. As a sole proprietor, you earn RRSP contribution room at 18% of your prior year's earned income (up to the annual limit, $32,490 for 2025). Every dollar contributed to your RRSP reduces your taxable income for the year, creating an immediate tax deferral at your marginal rate.

For example, if you're in a 40% marginal bracket and contribute $30,000 to your RRSP, you save approximately $12,000 in tax today. That money then grows tax-sheltered inside the RRSP until withdrawal — ideally in retirement when your income and marginal rate are lower.

RRSP vs. Corporation: The two strategies are not mutually exclusive — many incorporated owners pay themselves a salary specifically to generate RRSP room, then contribute to their RRSP each year. If you haven't yet maximized your RRSP, that's often the most straightforward first step. A CPA can help you model which combination of RRSP contributions, salary, and dividends produces the best long-term outcome for your situation.