Are you a successful sole proprietor losing a significant amount of money to taxes? Many entrepreneurs choose the sole proprietorship structure because it is simple, only to later realize they are giving the government more than 50% of their profits. This level of taxation can severely limit both business growth and personal wealth accumulation.
A corporation is a legally structured business entity that exists separately from you. While it does provide legal protection (not the focus here), one of its most powerful advantages is access to significantly lower tax rates. These lower rates allow business owners to retain more capital inside the business, accelerating growth and long-term wealth creation.
Let’s examine how incorporating can create substantial tax savings. Assume you are a high-income individual in the top personal tax bracket (53.53%) and earn $100,000 from a side business that is not incorporated.
Sole Proprietorship
Corporation (CCPC)
The tax savings achieved through a corporation are not permanent, but they represent a powerful tax deferral strategy. Canada’s tax system is designed so that the combined corporate and personal taxes are generally similar to earning the income personally. However, incorporation gives you control over when you withdraw funds, allowing you to choose when taxes are paid.
Transitioning from a sole proprietorship to a corporation is similar to selling a business. Because the corporation is a separate legal entity, assets must be transferred properly. A Section 85 rollover can be used to move assets into the corporation while deferring capital gains taxes during the transfer.
While incorporation is a powerful strategy, it is not suitable for everyone. The benefits depend on your personal income level, cash flow needs, and long-term goals. To determine whether incorporation makes sense for your situation, contact Orion Inc. at info@orioninc.ca or call 365.809.0334.
Reach out today and discover how we can help turn your financial aspirations into tangible outcomes.
