Event 6 of the 12Event Planning Model
Business Startup, Incorporation & Structure
Building It to Last
Incorporate at the right time, built for your future.
How TaxOnTax helps at this event
Planning the timing and structure of an incorporation, then the company's year-ends once it is running. Your lawyer drafts the articles and corporate records.
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Why this matters
Every business starts in some shape, whether the owner chooses it deliberately or not. At the very beginning, most people are what the tax system calls a sole proprietor: there is no separate company, just you, doing business in your own name. You and the business are one and the same taxpayer. It’s simple, it’s cheap, and for a brand-new or small venture it is often the right fit.
There is no shame in remaining a sole proprietor for a good while; plenty of profitable, well-run businesses operate that way for years. Simplicity has real value: one return, no separate filings, no extra fees, nothing extra to maintain. The trouble begins only when a business outgrows the simple shape and no one stops to size it up.
What most business owners get wrong
The errors here tend to happen at the very beginning, when owners are busy and the structure feels like a formality:
- They incorporate too early. Drawn by the idea that incorporating is what “real” businesses do, some owners take on the cost and paperwork before there’s any surplus to defer or any real risk to shield. The status feels good; the benefit isn’t there yet.
- They incorporate too late. The opposite, and just as common: a business throws off far more than the owner needs for years, all of it taxed personally at top rates, while the deferral advantage of a corporation goes unused. By the time they incorporate, they’ve left a lot behind.
- They give no thought to structure. They set up the simplest possible company, with a single owner holding a single kind of share, and never consider whether a spouse, a future partner, the next generation, or a holding company might one day matter. Later, when those things do matter, the simple structure becomes a costly obstacle.
- They build for today instead of for the plan. A structure that fits a tiny startup may not fit the company it’s trying to become. Building only for the present forecloses options the future will wish it had.
- They do it themselves to save a little, and lose a lot. A bargain incorporation kit can create a structure that’s expensive to unwind and missing the features that matter most.
- They treat incorporation as a one-time event. The right structure at startup may not be the right structure at scale. Owners who never revisit it can outgrow their own company’s bones without realizing it.
Your simple checklist
- Do you know why you’re incorporating: tax, liability, growth, succession, or a mix?
- Does your business earn meaningfully more than you need to spend each year?
- Is your share structure built with the future (family, partners, a sale) in mind?
- Have you left room for a holding company should surplus start to accumulate?
- Are the business and your personal finances cleanly separated from day one?
- Did you get proper advice for the one-time setup, rather than a bargain kit?
- Do you revisit the structure when the business hits a milestone?
- Are you documenting major decisions as you go, not scrambling later?
Questions to bring to your Discovery Meeting
- As a sole proprietor, at what point would operating as a Canadian-controlled private corporation (CCPC) start to save me tax?
- As a self-employed person, how much will I owe in Canada Pension Plan (CPP) contributions on my self-employment earnings, and how much of that can I deduct or claim as a credit?
- Will I have to pay my income tax by instalments, how much, and on which dates?
- My return is due June 15 because I carry on a business, but when is my balance due, and when does interest start?
- Could my corporation be considered a personal services business (PSB) because I work mainly for one client?
- Am I still a small supplier, or must I register for the goods and services tax/harmonized sales tax (GST/HST) and claim input tax credits (ITCs)?
- Is my share structure set up so my shares could qualify as qualified small business corporation (QSBC) shares for the lifetime capital gains exemption (LCGE)?
- Would dividends to my spouse or adult children be caught by the tax on split income (TOSI) rules, or would an exclusion such as excluded shares apply?
- Should I plan for a holding company above my operating company, and how would intercorporate dividends move surplus between them?
- Besides the GST/HST, does my province charge a provincial sales tax (PST), or in Quebec the Quebec sales tax (QST), and must I register for it separately?
The TaxOnTax™ Insight
Incorporating isn’t a milestone you reach; it’s a tool you pick up at the right moment. Good structure isn’t a bet on one future; it’s room for several.
Excerpted from Chapter Six, “Building It to Last”, of TaxOnTax™: The 12Event Planning Model, second edition, by Derik Godbout. Lightly trimmed for this page; the full chapter adds a worked example and the before-and-after steps.
Questions people ask
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TaxOnTax™ Advisory Ltd. is a tax planning, accounting and executor advisory practice that also provides plain-language tax education. Derik Godbout is a PBA, CEA and DMA, Personal Tax Services Specialist™, not a CPA, lawyer, registered investment adviser, or licensed insurance professional. Nothing on this site constitutes personalized tax, legal, investment, or insurance advice. Always consult a qualified professional before acting on any information.