The everyday work, done properly, for people who own the place they work.

Proprietor, partnership or corporation

Most businesses begin as a sole proprietorship, because it is the default rather than a choice you make. You are one from the moment you start trading on your own account. Income and expenses go on your personal return, losses in the early years can offset your other income, and the administration is light. For a business finding its feet that is often exactly right, and there are plenty of other decisions competing for your attention at that stage.

Registering the name

If you trade under anything other than your own legal name, the name has to be registered. In Ontario that is a Business Name Registration, done through the Ontario Business Registry.

Two things about it get overlooked. It is a name registration rather than permission to operate, so it does not replace municipal licensing, trade certification or anything else your particular business needs. And it lapses after five years. Renewing it is nobody's job in particular, so it quietly expires, and the owner finds out when a bank or a customer asks for it.

A partnership happens more often by accident than by design. Two people go into something together, nobody writes anything down, and there is a partnership whether or not either of them uses the word. That matters, because partners are generally liable for each other's business obligations and the income allocation follows the agreement you may not have made. If you are in business with someone, getting it documented is worth an afternoon.

A corporation is a separate taxpayer. It files its own return, it can retain income taxed at the small business rate rather than your personal rate, and it can outlive you. It also brings annual filings, a minute book, higher accounting fees and a set of rules about getting money back out.

One limit on the protection is worth knowing before you rely on it. Directors can be held personally liable for unremitted payroll deductions and HST, which are the two amounts a business under pressure is most likely to fall behind on. See director liability.

When incorporating earns its keep

The main tax benefit is deferral: profit left in the corporation is taxed at the small business rate rather than at your marginal rate, and the difference stays invested until you take it out. Ontario reduced its small business rate with effect from 1 July 2026, which widens that gap slightly.

The condition attached to that benefit is easy to miss. It only works if you are leaving money in. A business earning $150,000 where the owner needs all $150,000 to live on gets no deferral, because everything comes straight back out. What it gets instead is a corporate return, filing fees and more bookkeeping.

Non-tax reasons can still make it right: a customer or a lender requiring it, wanting the business to be separable from you, bringing in a partner, or genuine commercial risk you would rather sat in the company. Those are legitimate and sometimes decisive.

Often there is no clean answer. The tax arithmetic can land close to neutral, and what settles it is how you want to run the thing: whether the extra administration is worth the flexibility, whether the risk keeps you up at night, whether you intend to sell it one day. Those are your calls rather than mine, and reasonable people land differently on the same numbers.

Where a business is early on, the usual honest answer is not yet. That is free to find out, and so is talking through the version where the answer is genuinely close.

Taking money out of your corporation

Once the business is incorporated, its money is not your money, and the ways of moving it across are the thing owners most often get wrong.

Salary is deductible to the company, creates RRSP room, builds CPP and requires source deductions. Dividends are paid from after tax profits, create no RRSP room, avoid CPP, and are simpler administratively. The right mix depends on how much you need, whether you want the RRSP room, and what you are leaving behind. It is worth revisiting rather than being set once at incorporation.

Paying family members is legitimate where they genuinely work in the business and the amount is reasonable for what they do. Paying a spouse a salary for work they do not perform is not, and dividends to family members run into the tax on split income rules. See incorporated professionals for how those rules bite.

What you can actually deduct

The general test is that an expense has to be incurred to earn business income. Most disputes are about the personal element rather than the principle.

• Vehicle. Business use is deductible, personal use is not, and the split has to come from somewhere. A logbook is the only thing that survives a review. Where the corporation owns the vehicle and you drive it personally, a taxable benefit arises, and it can be larger than people expect
• Home office. Available to the self-employed on a reasonable basis, usually by floor area, and it cannot create or increase a loss. Unused amounts carry forward
• Meals and entertainment. Generally half deductible, and worth tracking separately so the restriction is applied once rather than argued about later
• Travel. Deductible where the purpose is business. Mixed trips need apportioning honestly
• Equipment. Capitalized and written down over time rather than deducted at once, in the class the asset belongs to
• Everything paid personally. Owners routinely pay business costs from a personal card and never claim them. That is money left behind, and it is the easiest thing to fix

If you run more than one company

Plenty of owner-managed businesses end up with two or three corporations: an operating company and a company holding the building, or separate companies for separate lines of work. This is often sensible. It also triggers a set of rules that catch people who were not looking for them.

• The small business deduction is shared. Associated corporations divide a single business limit between them rather than each getting their own. Two companies each earning $400,000 do not get the small business rate on $800,000
• The Employer Health Tax exemption is shared in the same way across associated employers. Owners frequently assume each company sits under the threshold independently. See payroll
• Association is about control and relationships, not about whether the businesses have anything to do with each other. Family holdings and shares held by a spouse or child can associate companies that feel entirely separate
• Transactions between your companies need to be real, documented and priced sensibly. Management fees between related companies attract attention when there is nothing behind them

If you have set up a second corporation without checking how it interacts with the first, that is worth half an hour.

Growing

• HST registration becomes mandatory once you pass the small supplier threshold, which is $30,000 of taxable revenue measured over a rolling period rather than a calendar year. Registering voluntarily before you have to can make sense where your customers are businesses and you have real input tax credits to claim
• Your first employee brings a payroll account, source deductions, WSIB and possibly the Employer Health Tax. Getting it set up correctly at the start is far cheaper than fixing it in year three. See payroll
• Choosing a year end. A corporation does not have to use 31 December. A year end that falls after your busy season, when the count is low and the numbers are calm, makes everything easier and can help with deferral
• Bookkeeping that keeps up. The single biggest determinant of whether your year end takes two days or two weeks. See bookkeeping

Eventually

Most owners think about selling long before they mention it to anyone. It is worth raising early, because some of the reliefs available on a sale of shares depend on the company meeting conditions in the period beforehand, and a structure that is fine for running a business is not always the one you want when selling it. Bringing it up two years ahead gives you options. Bringing it up when there is an offer on the table gives you fewer.

One that catches people: claiming the lifetime capital gains exemption is a common trigger for alternative minimum tax. That is usually recoverable over the following seven years, which makes it a timing question, unless you sell up and wind down, in which case there may not be enough regular tax left to recover it against.

Questions