TL;DR
If your business is growing and profitable, incorporation might save you significant tax and provide more control over your finances. Four signs it might be time to incorporate:
- Your business revenue is above $250K and your tax bill is climbing
- You keep money in the business instead of withdrawing it all personally
- You want flexibility in how you pay yourself (salary, dividends, or both)
- You’re planning for long-term growth, expansion, or a future sale
The YBL Incorporation Calculator shows your potential savings, compares sole proprietorship and corporation structures, and gives you a clear action checklist in minutes.
Is It Time to Incorporate? 4 Signs You’re Leaving Money on the Table
If you’re running a successful business as a sole proprietor or in a partnership, there’s a point where staying unincorporated could be costing you more than you think.
Incorporation changes how you pay tax, how you manage income, and how much control you have over your finances. Figuring out if it’s the right move for you can feel complex, especially when you’ve been focused on growing the business rather than exploring structural options. That’s why it helps to understand the specific signs that incorporating might be worth exploring.
Here are four signs it might be time to take a closer look at incorporating.
1. Your Revenue Is Growing and Your Tax Bill Is Rising
When your business is consistently bringing in over $250,000 in annual revenue, your personal tax rate can reach some of the highest brackets in your province. As a sole proprietor, you pay tax on all your net income at personal rates, which means a significant portion of your profits can go toward taxes. Incorporation introduces the opportunity to take advantage of lower corporate tax rates on active business income.
By paying yourself strategically from the corporation, you can control the timing and method of your personal income. This allows you to keep more funds inside the company for reinvestment, expansion, or reserves. Over time, this structure can create meaningful savings and improve cash flow for both your business and personal finances.
2. You Leave Money in the Business Instead of Taking It All Out
If you do not need to withdraw every dollar of profit for personal living expenses, incorporation can make that retained money work harder for you. Corporate tax rates on active business income are substantially lower than top personal tax rates, which means you can keep more capital within the business at the end of the year. This can strengthen your ability to grow, invest, or weather slower periods.
The extra funds can be used to purchase equipment, hire staff, or explore new opportunities without the added pressure of paying high personal taxes upfront. It also creates a buffer for unexpected expenses or downturns, improving your overall financial stability. For owners planning to scale, this can be a valuable advantage.
3. You Want More Flexibility in How You Pay Yourself
As a sole proprietor, your earnings flow directly into your personal income for the year. Incorporation opens up the option to take a salary, dividends, or a combination of the two, providing more control over how your income is taxed and how benefits like CPP or RRSP contribution room are managed. This flexibility allows you to tailor your pay to meet both your immediate needs and your long-term goals.
You can adjust your compensation from year to year depending on your business performance, personal plans, and tax considerations. This can help you save for retirement more effectively, manage cash flow, and smooth out your personal income over time. The result is a system that adapts to you, rather than you having to adapt to it.
4. You’re Thinking Long-Term About Growth or Sale
Incorporation offers benefits that go beyond the immediate tax year. A corporation can build its own credit profile, enter contracts, and own assets separately from you, which can be important if you are planning to expand or bring on partners in the future. It can also provide limited liability protection, which helps separate your personal assets from your business obligations.
For those considering selling the business or passing it on, incorporation can also open the door to tax planning opportunities such as the Lifetime Capital Gains Exemption on the sale of shares. This can make the business more appealing to potential buyers and can reduce taxes when ownership changes. Thinking ahead about these possibilities can help position you for a stronger exit when the time comes.
Find Out Exactly What Incorporation Could Save You
Knowing the signs is a good start, but every business is unique. The right decision depends on your specific numbers, including income, province, and personal cash needs.
That’s why we built the YBL Incorporation Calculator. In just a few minutes, you’ll see:
- Your estimated annual tax savings
- A side-by-side comparison of sole proprietorship and corporation
- Five-year projections and a clear action checklist
Don’t keep guessing. See exactly how much money you might be leaving on the table.
Still not sure? Here is more information on when to incorporate.