Personal or Business Tax Filing? How to Choose the Right One

1. Why Many People Feel Confused When Choosing a Tax Filing Method

If you're working independently, running a small service, or selling online in Canada, you have two main options: file as an individual (sole proprietor) or incorporate your business.

Each choice comes with distinct tax benefits, legal rights, and responsibilities.

2. Filing Taxes as an Individual (Self-employed / Sole Proprietor)

Advantages:

• Simple and easy for those in the early stages of business

• Lower tax filing service fees

• No need to fully separate personal and business bank accounts

Limitations:

• Higher personal tax rates as your income increases

• No legal liability protection

• More difficult to scale, raise funds, or build a major brand

Best for:

• Freelancers, side hustles, or those just starting out

• Income under $50,000/year or still unstable

3. Filing Taxes as a Business (Incorporated)

Advantages:

• Significantly lower tax rate: around 12–15% in Canada

• Personal assets are protected from business liabilities

• Easier to build credibility, grow a team, attract investors, or expand

Limitations:

• More complex setup, accounting, and tax reporting

• Higher maintenance costs (accounting, permits, corporate filings)

Best for:

• Profitable, growing businesses

• Entrepreneurs needing investment or scaling operations

4. When Should You Switch from Individual to Business Filing?

It’s often wise to start as a sole proprietor and switch to incorporation when:

• Your income exceeds $70,000/year

• You want to retain earnings within the company

• You plan to hire employees or expand services

That’s the point when incorporating becomes more tax-efficient and strategically sound.

5. Need Expert Help? Don’t Navigate Alone

Every tax situation is unique. Choosing the wrong structure can lead to:

• Paying more tax than necessary

• Audit risk with CRA

• Missing out on deductions and benefits

TikiTax helps you evaluate your situation thoroughly, compare options, and choose the right filing path — from personal tax returns to full incorporation support.

🔔 Conclusion:

Choosing between personal or business tax filing isn’t just about paperwork — it’s a long-term financial strategy. Make the right decision — from the start.