Incorporate · By Situation
Only when the numbers justify it. If your freelance income is high and you keep more than you spend, incorporating lets retained earnings be taxed at roughly 12.2% instead of your personal rate, plus you get liability protection and look more established. Below about $60,000 of profit, a sole proprietorship is usually simpler and cheaper.
Only when the numbers justify it. If your freelance income is high and you keep more than you spend, incorporating lets retained earnings be taxed at roughly 12.2% instead of your personal rate, plus you get liability protection and look more established. Below about $60,000 of profit, a sole proprietorship is usually simpler and cheaper.
"Freelancer" covers everyone from a part-time designer earning $15,000 a year to a full-time developer clearing $150,000. There's no single answer for all of them, and anyone who tells you "every freelancer should incorporate" is selling something. The real question is how much you earn and how much of it you actually keep.
Incorporation's core advantage is tax deferral. Money your corporation earns but doesn't pay out to you stays inside the company taxed at roughly the 12.2% Ontario small-business rate on the first $500,000 of active income, far below your personal marginal rate, which climbs past 43% well before six figures and tops out near 53.5%. If you bill $130,000 and live on $80,000, the other $50,000 can stay in the corporation, lightly taxed, and come out in a leaner year.
But that advantage only exists on money you don't need. If you draw out everything you earn to live, most of the tax benefit evaporates, and the roughly $580 setup plus a few hundred dollars a year in accounting may not be worth it yet.
A useful gut-check, not a hard rule: below about $60,000 of net profit, a sole proprietorship is usually the better call. It's cheap (a business-name registration is about $60), your taxes are simpler, and you can deduct legitimate business expenses just fine as a sole proprietor. You lose nothing important by waiting.
Once you're consistently netting north of $60,000–$100,000 and you don't need all of it to live on, it's worth running the actual math with an accountant. The more you earn and the more you retain, the stronger the case gets. Freelancers whose income is lumpy (big years and slow years) also benefit from a corporation's ability to smooth income across years.
The mistake is incorporating too early because it feels like a milestone. Incorporate when it saves you money or protects you, not for the badge.
Tax isn't the only reason freelancers incorporate. A corporation is a separate legal person, so in general the business's debts and contractual obligations are the corporation's, not yours personally, and that limited-liability shield matters more as your projects get bigger and the stakes rise. (It's not absolute: you'll often still sign personal guarantees for financing, and you're always responsible for your own negligence, but it's real protection against ordinary business liabilities.)
There's also a credibility angle that freelancers underrate. Larger clients, agencies and enterprise procurement teams are frequently more comfortable contracting with "Northwind Studio Inc." than with an individual, and some corporate vendors literally won't onboard a sole proprietor. Incorporating can open doors to work you couldn't get billing as yourself.
If you're chasing bigger clients or bigger projects, the liability and credibility case can justify incorporating even before the tax math alone would.
One caution that catches freelancers who mostly work for a single client. If you incorporate but then work for one company, under their direction, on their schedule, with their tools, essentially as their employee but invoicing through your corporation, the CRA may classify you as a "personal services business" (PSB). A PSB loses the small-business deduction and most expense deductions and is taxed at a punitive rate, which erases the benefit you incorporated for.
You stay on the right side of this by looking and operating like a genuine business: several clients over time, your own equipment, control over how and when you deliver, and contracts for outcomes rather than hours. Most freelancers with a diverse client base are fine. If nearly all your income will come from one client who treats you like staff, talk to an accountant before you file. This is exactly the situation the PSB rules exist to catch.
You answer a short questionnaire: numbered or named, who the director and shareholder are, your Ontario registered office address, and your share structure. About fifteen minutes, and we flag anything that looks off before you pay.
We prepare your Articles of Incorporation, By-law No. 1, organizing resolutions and share registers and file with the Ontario Business Registry, accepted immediately. Your digital minute book arrives the same day: the documents your bank will ask for when you open a business account. Whether incorporating is right for you and how to pay yourself are questions for your accountant; CorpStart handles the filing.
Three steps once you've decided the numbers make sense.
Run the math first
Roughly, above ~$60k of profit you don't fully draw out, incorporating starts to pay. An accountant can confirm the tax case for your income and how you want to be paid.
We prepare and file
CorpStart drafts your Articles, By-law No. 1 and resolutions, then files with the Ontario Business Registry, accepted immediately, digital minute book the same day.
Move your freelance work into the corporation
Open a business account, invoice through the corporation going forward, and keep corporate and personal money strictly separate.
Sole proprietorship vs. incorporating as a freelancer
| Factor | Sole proprietorship | Ontario corporation |
|---|---|---|
| Tax on retained profit | Your full personal rate (up to ~53.5%) | ~12.2% small-business rate |
| Tax deferral possible? | No | Yes, on income you don't draw out |
| Liability protection | None, you are the business | Limited to the corporation |
| Credibility with big clients | Sometimes a barrier | Often preferred or required |
| Setup cost | ~$60 name registration | ~$579 all-in via CorpStart |
| Best when profit is… | Under ~$60k or all needed to live on | Comfortably above what you spend |
At what income should a freelancer incorporate?
There's no hard line, but roughly once you're consistently netting more than about $60,000 and don't need all of it to live on, the tax case starts to work. Below that, a sole proprietorship is usually simpler and cheaper. Run the real numbers with an accountant before deciding.
Can I deduct business expenses without incorporating?
Yes. Sole proprietors deduct legitimate business expenses against their income just like corporations do. Deducting expenses is not a reason to incorporate. The reasons to incorporate are tax deferral on retained earnings, liability protection, and credibility.
Does incorporating protect me from being sued?
It limits your exposure to ordinary business liabilities: the corporation's debts and obligations are generally its own, not yours personally. It's not absolute: you're still responsible for your own negligence and any personal guarantees you sign. But it's real protection that matters more as your projects get bigger.
I mostly work for one client. Is incorporating a problem?
It can be. If you work under that client's direction, on their schedule, with their tools, the CRA may classify your corporation as a personal services business, losing the small-business deduction and most expense deductions. Incorporating works best with several clients and genuine control over your work. Check with an accountant first.
Numbered or named corporation for freelancing?
A numbered corporation is faster and cheaper and looks perfectly professional if you invoice under your own name. Choose a named corporation if you're building a brand or studio identity. You can add a name later through an amendment, so numbered is a safe starting point.
Ready when your numbers are?
$279 service fee + $300 Ontario government fee. Submitted to the Ontario Business Registry and accepted immediately, digital minute book the same day.
Start my corporationCorpStart is a document preparation service, not a law firm. The information on this page is general in nature and does not constitute legal or tax advice. For advice specific to your situation, consult a licensed lawyer or accountant.