Why corporations pay less tax

A Canadian-controlled private corporation in Ontario pays about 12.2% combined on its first $500,000 of active business income. The top personal rate in Ontario is 53.53%.

This is mostly tax deferral. Money left in the company has been taxed at a low rate, so more is available to reinvest. You pay personal tax when you take it out.

Is incorporating right for you?

It tends to help when you earn more than you need to live on and can leave profits in the company. It also adds costs: separate bookkeeping, a T2 return, slips and annual corporate filings.

If you need all your business profit for personal spending, the tax benefit is often small.