When you incorporate, you gain several tools which will help you reduce your taxes as a small business owner. In Canada, the tax rate on corporations is lower than the tax rate for individuals. You also have the flexibility of choosing how you get paid. You can pay yourself in salary, dividends, or a combination of both depending on what will result in the lowest tax burden.
As a business owner, if you are able to leave money in the company and not take it all out for personal expenses, you can reduce the taxes your business will pay. This means that the money you leave in your company could be used to invest back into the business: for example, to spend on marketing, buy new equipment, purchase additional inventory or hire new staff.
If your corporation is owned by a majority of Canadian citizens or residents, you will gain further tax benefits available to Canadian Controlled Private Corporations (CCPCs) including the Small Business Deduction.
Tax questions can be confusing and will depend on each business’s circumstances. This is why it’s recommended to speak with a tax professional or accountant if your tax situation is complex.