Incorporating a Small Business in Canada: What CRA Doesn’t Tell You

The Hidden Realities Behind Incorporation

Incorporating a small business in Canada often sounds like a smart move. Lower tax rates, liability protection, and “being more professional” are commonly advertised benefits. But what the CRA doesn’t clearly tell you is that incorporation comes with complex tax rules, ongoing costs, and strategic trade-offs.

At Tiki Tax, we regularly meet business owners who incorporated too early—or for the wrong reasons. This guide explains what you need to know before making that decision.

Incorporation Doesn’t Automatically Mean Lower Taxes

CRA promotes lower corporate tax rates, but here’s the reality:
those savings only matter if you leave money inside the corporation.

If you need most of your profits to cover personal living expenses, you’ll still pay personal tax when you withdraw funds. In many cases, the total tax ends up being similar—or even higher—than staying self-employed.

Incorporation is about tax deferral, not instant tax reduction.

You Pay Yourself—And CRA Cares How

CRA doesn’t explain how critical salary vs dividends is.

Salary affects:

• CPP contributions

• RRSP room

• Payroll compliance

Dividends affect:

• Personal tax rates

• No CPP or RRSP room

• Passive income rules

Choosing incorrectly can cost thousands over time.

More Filings, More Scrutiny

Once incorporated, you’re no longer filing just a personal tax return.

You now have:

• A T2 corporate tax return

• Possible payroll filings

• T4s or T5s

• GST/HST filings

• Separate bookkeeping

CRA also tends to scrutinize corporations more closely, especially service-based businesses.

Liability Protection Is Not Absolute

CRA doesn’t advertise this clearly:
incorporation does not protect you from everything.

You can still be personally liable for:

• Payroll deductions

• GST/HST

• Personal guarantees

• Professional negligence

Incorporation helps—but it’s not a shield for poor compliance.

Passive Income Can Trigger Higher Taxes

If your corporation earns too much passive income (investments, rental income), CRA may:

• Reduce your small business deduction

• Increase effective corporate tax rates

This catches many incorporated business owners by surprise.

Incorporating Too Early Can Cost You More

Common mistakes:

• Incorporating with low or unstable income

• Not understanding compliance costs

• Ignoring cash flow needs

• No long-term tax strategy

CRA doesn’t warn you about the break-even point—but it matters.

Incorporation Is a Strategy, Not a Status

CRA won’t tell you this clearly, but incorporation should support:

• Long-term growth

• Tax deferral opportunities

• Risk management

• Exit planning

If it doesn’t support these goals, it may not be the right move—yet.

How Tiki Tax Helps You Incorporate the Right Way

At Tiki Tax, we don’t just help you incorporate—we help you decide if and when it makes sense.

We support you with:

• Pre-incorporation tax analysis

• CRA-compliant setup

• Salary vs dividend planning

• Ongoing personal and corporate tax strategy

Thinking About Incorporating?

Don’t rely on surface-level information.

👉 Talk to Tiki Tax before you incorporate.
We’ll explain what CRA doesn’t—and help you avoid costly mistakes.

🌐 Website: https://www.tikitax.ca/