Sole Proprietorship vs. Corporation: Which Structure Saves You More Tax?

Maple Tax
Oct 22
2 min read

Almost every new entrepreneur we meet asks the same question:

“Should I register a corporation, or just start as a self-employed individual?”

At first glance, this seems like a simple choice — but behind it lie important considerations around taxation, liability, and business growth. There’s no absolute right or wrong answer, but understanding both options will help you decide which is best for your current stage and future goals.

1. Sole Proprietorship — Simple but Limited

The biggest appeal of operating as a sole proprietor is its simplicity, flexibility, and low cost.

No need to register a company — you can operate under your personal name.
File your income and expenses on your personal tax return (T1) using Form T2125.
All profits are treated as personal income for tax purposes.

Sounds easy, right? It is — but there are trade-offs:

No legal separation between you and your business. Personal assets may be at risk in case of debts or disputes.
Tax rates rise sharply as income grows — up to 53% in some provinces.
Harder to attract investors or build business credit.

Best for: freelancers, consultants, part-time entrepreneurs, and small online sellers just starting out.

2. Corporation — Stable but More Complex

Incorporation gives your business a separate legal identity, creating a clear line between your personal and company finances.

Key advantages:

Personal and business funds are fully separated.
Corporate profits are taxed at the small-business rate (as low as 9%), often much lower than personal tax rates.
You can defer personal income by choosing when to pay yourself salary or dividends.

Additional benefits include:

Easier access to loans, grants, and government funding
Building a strong credit profile over time
Attracting partners and investors

Of course, there are a few downsides:

Annual filings and bookkeeping requirements are stricter
You’ll need to pay incorporation and accounting fees
Missing CRA filing deadlines may result in penalties

Best for: businesses with over $60,000 in annual profit, or entrepreneurs planning for long-term growth and brand development.

3. Tax Comparison: Which Is More Advantageous?

Category	Sole Proprietorship	Corporation
Tax Rate	Progressive, up to 50%+	Small-business rate ~9% (plus dividend tax)
Tax Deductions	Business-related expenses	Broader deductions (e.g. payroll, insurance)
Liability	Unlimited (personal risk)	Limited (separate legal entity)
Administrative Cost	Low	Higher (registration & accounting)
Best Stage	Early or part-time income	Stable profit or expansion phase

Bottom line:If your income is still modest, starting as a sole proprietor is lighter and simpler.But once your annual profit reaches around $60,000 or more, or you want to optimize taxes, protect assets, and build a brand, incorporation is the smarter move.

4. Real Case Example

One of our clients ran a small food-delivery business as a sole proprietor, earning about $80,000 per year. As income grew, his tax rate climbed quickly — so he decided to incorporate.

With our guidance, he switched to a salary-plus-dividend strategy, legally saving over $7,000 in taxes annually. His new company also qualified for a digital-adoption grant for small businesses.