Incorporation

• Forming a Corporation: A Legal “Person” Separate from You
• This is done at the federal level (Corporations Canada) or at the provincial level (Registraire des entreprises in Quebec)
• Protects your personal assets (limited liability) and gives you access to the reduced tax rate for small and medium-sized businesses (SMEs), approximately 12% in Quebec
• Adds obligations: two corporate tax returns (T2 at the federal level, CO-17 in Quebec), records, and business registration numbers
• Ongoing Obligation: Each year, the company must also file its update return with the Quebec Registraire des entreprises (REQ), in addition to its tax returns

Imagine a barrier between your personal finances and those of the business: if the company has debts, your personal assets (home, savings) are generally protected. This is known as “limited liability.” As an added bonus, a corporation pays tax at a reduced rate of about 12% in Quebec on its initial profits, compared to over 50% at the highest personal tax rate. But incorporating adds costs and requires a separate tax return: it isn’t always cost-effective at first. Bankeo will connect you, for free, with a vetted accountant or CPA (Chartered Professional Accountant) who will calculate your break-even point, choose the right structure, and handle the paperwork. We’re here to support you every step of the way.

Specifically, this reduced rate of approximately 12.2% applies to the first $500,000 in profits of an eligible SME: on $100,000 retained by the company, the tax comes to around $12,200, compared to over $50,000 if the same amount were taxed at your highest personal tax rate. In exchange, the company files its T2 return (and CO-17 in Quebec), and you decide to pay yourself a Salary or Dividend. The company’s existence and obligations are also kept up to date with the Quebec Registraire des entreprises (REQ). The tax rates applicable to corporations are detailed by Revenu Québec. Figuring out whether it’s worth it is a matter of calculation, not intuition: Bankeo will connect you, at no cost, with an accountant who can do the math and guide you every step of the way.

What does it mean to incorporate, in simple terms?

This involves transforming your business into a corporation, a legal “entity” separate from you. The corporation has its own assets and liabilities, separate from your personal finances. You become a shareholder (owner) and often a director (officer).

At what income level does it become advantageous?

There’s no magic number. It depends on your profits, how much you reinvest in the business, and your tolerance for paperwork. In general, incorporation becomes worthwhile when you leave money in the company rather than spending it all personally.

Federal or provincial: Which should you choose?

Federal incorporation protects your business name across Canada; provincial incorporation (in Quebec) is often simpler and less expensive if you operate primarily in Quebec. The right choice depends on your business activities. Bankeo will connect you, for free, with a vetted accountant or CPA who will help you decide and handle the paperwork. We’re here to support you every step of the way.