A financially honest, plain-language assessment for self-employed Canadians and sole proprietors. Enter your real numbers and see what incorporation is actually worth.
Our commitment: This tool is designed to give you the honest answer, not the answer that generates the most accounting fees. Incorporation is genuinely the wrong choice for some businesses at some stages. We would rather you know that before spending money to find out.
⚠ Personal Services Business risk detected
Based on your answers, your situation may trigger the Personal Services Business (PSB) rules. A PSB corporation loses the small business deduction entirely, pays corporate tax at approximately 26.5% instead of 12.2%, and loses most expense deductions. Incorporating in a PSB situation can leave you paying more tax than if you simply remained self-employed. This needs a thorough CRA four-factor analysis before you take any steps toward incorporating.
AYour Numbers
1
Tell us your numbers so we can calculate the real dollar impact
Province
Net business profit - before paying yourself
$
What you need to live on personally
$
Net business profit (before paying yourself) is your revenue minus all business expenses, not including any salary or drawings you take for yourself. If you earned $180,000 in revenue and had $40,000 in expenses, enter $140,000 here.
What you need to live on is the amount you personally need to withdraw from the business each year to pay your household bills, mortgage, and personal costs. The difference between these two numbers is what could stay inside a corporation taxed at the lower corporate rate.
Your net profit is zero or negative. Do you expect to be profitable?
As a sole proprietor, current business losses can be applied against your own other personal income on your T1 return (employment income, rental income, investment income), producing an immediate tax refund. Once incorporated, those losses are trapped inside the corporation. Stay unincorporated until the business is consistently profitable.
2
How long have you been operating as a sole proprietor?
Transferring an established sole proprietorship to a corporation requires a Section 85 rollover to avoid triggering immediate capital gains and recaptured depreciation on those assets. This is a one-time professional fee of roughly $2,000 to $5,000 that affects your year-one economics.
BYour Situation
3
What best describes your client relationships?
CRA can classify a corporation as a Personal Services Business (PSB) if the worker would reasonably be considered an employee if the corporation did not exist. A PSB loses the small business deduction and most expense deductions. This is common among IT contractors, consultants placed through agencies, and professionals seconded to client sites.
4
What is your exposure to business liability?
As a sole proprietor your personal assets are fully exposed to any business claim or debt. A corporation limits that to corporate assets. Directors remain personally liable for unremitted payroll source deductions and GST/HST regardless of structure, and your own professional negligence cannot be sheltered by a corporation.
CYour Goals
5
Do you have a spouse or adult children with meaningfully lower personal income than you?
A corporation can pay dividends to lower-income shareholders taxed at their marginal rate instead of yours. This requires proper share structure design and a TOSI (Tax on Split Income) analysis from day one to ensure the structure qualifies.
6
Do you anticipate selling the business or passing it to someone eventually?
Sole proprietors who sell their business sell assets and generally cannot access the $1,275,000 Lifetime Capital Gains Exemption. Incorporated owners selling qualifying shares can shelter up to $1,275,000 in capital gains tax-free. The holding period and asset tests take time to satisfy, so starting earlier matters significantly.
7
How do you feel about additional financial administration?
A corporation requires a separate T2 return, minute book, annual filings, separate banking, and structured bookkeeping. If this sounds like too much, the answer is not necessarily to stay unincorporated. It means delegating the compliance to an accountant. At Zenbooks our corporate engagement starts at $200 per month, covering bookkeeping, year-end, and T2 filing.
Answer the questions above and your personalised assessment will build here in real time. No submit button.
Want a precise model for your situation?
The numbers above use reasonable estimates. A 30-minute conversation gives you precise figures, the Section 85 implications if relevant, and a clear recommendation you can act on.
Important disclaimer This tool provides general estimates only and does not constitute tax or legal advice. Tax calculations use simplified combined federal-provincial marginal rate estimates and may not reflect your exact situation. Compounding projections assume constant annual retained earnings and a fixed return; actual results will vary. Personal Services Business determinations require a full CRA four-factor analysis. Section 85 rollovers require professional execution. Income splitting requires proper TOSI analysis. Consult a qualified CPA and corporate lawyer before incorporating. Zenbooks Tax Services Professional Corporation is regulated by CPA Ontario.