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Understanding Incorporation vs. Sole Proprietorship in Canada: Tax Implications and Obligations

Choosing the right business structure is a crucial step when starting a business in Canada. Incorporation and sole proprietorship are two common options, each with distinct tax implications. In this blog post, we’ll delve into the differences between them and shed light on important considerations. Discover how JA Accounting can assist you with Federal and Provincial incorporation, name reservation, tax numbers, and a range of comprehensive services tailored to your business needs.

Sole Proprietorship:

A sole proprietorship is a straightforward business structure where you, as an individual, operate the business.

Here are some key points to note about the Tax Implications: As a sole proprietor, you report your business income and expenses on your personal tax return. No separate corporate tax return is required. However, it’s important to understand that sole proprietorship does not provide limited liability protection, and you are personally responsible for debts and legal issues. The income you make under the sole proprietorship will increase your tax bracket and will lower any tax credit or benefit you get. However, it’s very beneficial if your income will be lower than a certain threshold and can save you even more than the incorporation.


Incorporating your business establishes a separate legal entity from yourself, offering benefits and considerations:

  • Federal and Provincial Incorporation: Depending on your business goals, you can choose between Federal and Provincial incorporation. Federal incorporation allows you to reserve a name across Canada, while Provincial incorporation reserves your name within the specific province you register in. It also gives you the flexibility to move your head office and open offices wherever you go in Canada.
  • Tax Implications: Corporations file a separate corporate tax return and may benefit from potential tax savings through strategic expense management and salary/dividend structures.

Additionally, both sole proprietorship and corporations are required to obtain Sales Tax Numbers, such as GST/HST and PST, either during registration or when sales exceed $30,000. Some activities may be exempt from sales tax and may not require a number. If your business plans to have employees, obtaining a payroll tax number is also necessary.

At JA Accounting, we provide a wide range of services to support your business journey. We offer assistance with Federal and Provincial incorporation, including name reservation and the necessary paperwork to establish your business. Our services encompass obtaining Sales Tax Numbers, such as GST/HST and PST, and facilitating access to Federal and Provincial tax websites. We also issue Business Numbers (BN) and all required tax numbers. Beyond incorporation, we offer ongoing support, including file maintenance with government authorities, payroll management, bookkeeping services, preparation of financial statements, and tax preparation.


Choosing between incorporation and sole proprietorship involves considering liability, growth plans, and tax implications. JA Accounting is here to guide you through the incorporation process, offering Federal and Provincial incorporation, name reservation, tax number acquisition, and a comprehensive range of services tailored to your business needs. Contact us today to benefit from our expertise and ensure your business thrives while meeting all regulatory requirements. Book your free consultation, no string attached HERE.

Remember, making informed decisions regarding your business structure and tax planning is vital. Seek professional advice to ensure you choose the optimal option and maximize tax advantages while receiving comprehensive support for your business’s ongoing success.

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