Why should you incorporate your Canadian business? There is a lot of misinformation about what incorporating means in Canada. A lot of people believe that it creates a legal separation between you and your business, so your personal assets are safe, but this is not the case as a health professional. Incorporating too early can also cost you more than it saves you in tax planning since the tax trigger for incorporating is earning more income than you need. In this article, you'll learn the top 5 advantages of creating a corporation in Canada!

But first, learn how incorporating might cost you more than it saves you with our Free Workbook!

Tax Advantages Of A Corporation

As a general rule, corporations that earn less than $500,000 in taxable income per year pay significantly lower income tax than a sole proprietorship. Through a proper strategic plan, you can save a lot of money on your annual tax bill.

Federal income tax rates for business income in a corporation start at 12% and do not increase until you have more than $500,000 of taxable income.
Personal income tax, on the other hand, starts at 15% federally and goes up, in 2023, after only $53,359 of taxable income.
The catch is that once you take money out of your corporation, you pay personal income tax.
If you are using all the money that you earn in your personal life, there really isn’t much to save on your overall income tax bill.

Limited Liability

You may have heard that incorporating your business protects your personal assets, but this is not always the case.

Health professionals can only incorporate their practice as a professional corporation which does not remove the legal liability of your practice.
When owning a clinic, the liability stays with each practitioner regardless of the business being a separate entity–this legal structure does not remove liability for the practitioners.
You are still liable for income tax payments and lose your initial investment in the business if you declare bankruptcy.

Ease Of Transferring Ownership

You may not think you will ever sell your business, but incorporating helps with long-term and retirement planning

Instead of transferring each individual item that your business owns, you simply sell the shares and have one share sale transaction
Selling shares is considered a capital gain for income tax, so it is only included at 50% of your increase in share value
Shares can be more easily transferred to family members if that is part of your long-term planning

Increased Credibility

While you may not know which businesses out there are incorporated or not, making the decision to incorporate, especially a clinic, can have some advantages:

Brand name and brand awareness are created by securing your company name vs. operating as your first name and last name.
Practitioner independent contractors may view your company as more long-term if you incorporate.

Access To More Capital

There are a lot of funding grants available for corporations, specifically to renovate or purchase assets for a clinic space

The Canada Small Business Financing Program (CSBFP) is a government program that makes it easier for small businesses to get loans from banks because they share the risk with the lenders. This is only available to new corporations.
Banks still view corporations as less risky investments than sole proprietors, and there are certain advantages to being a brand-new company.

Is Incorporating For You?

Incorporating can be a great choice for your business setup. It allows for tax planning, ownership transfer, increased credibility and access to capital for new corporations. However, incorporating as a health professional does not remove your practice's legal liability and incorporating too early can also cost you more than it saves you in tax planning since the tax trigger for incorporating is earning more income than you need.

Now that you know the key features of incorporating, you can make an informed decision about if it is right for you.

You may be thinking that incorporating your new health business from the start is the best decision–but making the wrong decision can cost you! Learn the best business structure for your business and how to set it up correctly with Business Foundations Incorporating: The blueprint to understanding the business structure options for your new health business.