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Stage · Self-employed money in Canada

Growth: incorporation, hiring, scaling

The decision most self-employed Canadians wrestle with for years. Incorporation provides tax deferral through retained earnings, income splitting potential (though restricted since 2018), and legal separation. It also costs $1,000-$3,000/year in ongoing compliance and only saves money above roughly $80,000 net business income.

Reviewed by Ben Stevenson, Managing Editor, Canadian Money Help Updated April 21, 2026 Methodology

What to do this week

  1. Run the incorporation breakeven. Calculate your current personal tax + CPP on business income vs incorporated (small business tax rate, then personal tax on dividends or salary drawn). Professional projection typically required for accuracy.
  2. If incorporating: set up a Canadian Controlled Private Corporation (CCPC) through a lawyer ($1,500-$2,500) or an online service ($200-$800). Lawyer route is strongly recommended if you have partners, complex assets, or plan to raise investment.
  3. Plan the compensation mix: salary vs dividends. Each has different CPP, RRSP-room, and tax implications. Typical mix is a modest salary up to basic personal amount plus dividends above.
  4. Consider hiring, first employee is a milestone with significant compliance: payroll withholdings, CPP, EI, WCB/WSIB, T4 preparation. Many self-employed Canadians use a payroll service (QuickBooks Payroll, Wagepoint, Humi).
  5. Open a corporate investment account if your business retains meaningful cash. Investment income in a CCPC is taxed differently from active business income, specialist tax advice often pays for itself here.

What to avoid

  • Incorporating primarily for 'limited liability'. Most small-business liability protection is weak if you personally sign contracts, personally guarantee loans, or commit professional negligence. Insurance usually matters more than legal structure.
  • Paying yourself dividends only (no salary). Dividends don't create RRSP room or CPP contributions. Most CCPC owners should take some salary to build both.
  • Tax on Split Income (TOSI) surprises. Since 2018, dividends paid to family members can be taxed at the top rate unless the recipient meets 'reasonable contribution' tests. Review with an accountant before splitting income.
  • Hiring employees as 'contractors' to avoid withholdings. CRA regularly reclassifies; if they rule the contractor is actually an employee, the business owes all unwithheld CPP, EI, and income tax, with interest and penalties.

Calculators for this stage

Sole Prop Vs Corp Breakeven Salary Vs Dividends Payroll Employer Cost

Forms to file at this stage

Federal incorporation (Corporations Canada)

Incorporate federally for ~$200-$300 online. Allows operation across provinces without separate provincial registrations. Annual return filings required.

Corporations Canada →

Provincial incorporation

Often cheaper if operating in one province. Ontario: $360. BC: $350. Quebec: $363. Alberta: $275. Complete through provincial corporate registry.

CRA: Payroll for new employers

Payroll account, remittance schedules, T4 preparation. Register before first paycheque.

CRA: Payroll →

Frequently asked

At what income level does incorporation make sense?

Rough rule of thumb: $80,000-$100,000+ net business income AND you can reasonably leave some profits in the corporation (tax deferral is the main benefit). Below that, sole proprietorship is usually cheaper after incorporation/compliance costs. Run a personalized projection annually.

Should I pay myself salary or dividends from my corporation?

Salary: creates CPP contributions and RRSP room, tax-deductible to the corp, subject to personal income tax and CPP. Dividends: no RRSP room, no CPP, 'gross-up and credit' mechanics. Typical optimal mix is modest salary up to the basic personal amount or RRSP-maximizing level, then dividends for additional draws. Annual review with an accountant is typical.

Can I pay my spouse from my corporation?

Yes, with caveats. A salary must reflect work actually performed at a reasonable rate. Dividends to a spouse are restricted under TOSI rules since 2018, paid at the top personal marginal rate unless the recipient is 65+, substantially involved in the business, or owns 10%+ of the shares with substantial participation.

What is a CCPC?

Canadian Controlled Private Corporation: a private corporation resident in Canada, controlled by Canadian residents. CCPCs get the Small Business Deduction on the first ~$500,000 of active business income per year, reducing federal tax to ~9% + provincial rates. The single biggest tax advantage of incorporation.

Next stage

Exit: winding up, selling, or transitioning →