Incorporate as an independent contractor.

The consequences are severe. A PSB is denied the small-business deduction entirely, so instead of roughly the 12.2% Ontario small-business rate, its income is taxed at a punitive combined rate around 44.5%. Worse, a PSB can't deduct most normal business expenses (no equipment, no home office, no supplies), only salary paid to the incorporated employee and a few narrow items. In other words, a PSB gets the worst of both worlds: corporate paperwork with none of the corporate tax benefit. That's why this must come first, before any discussion of savings.

The rules apply across every trade and skill: IT contractors, tradespeople, drivers, project managers, anyone billing through a corporation. It doesn't make you a wrongdoer; it just means incorporating may not help you the way you hoped if your working relationship looks like employment.

Concretely, that means writing contracts for deliverables or outcomes rather than hours, using your own equipment, setting your own methods and schedule where you can, invoicing several clients, and being free to take on other work. The more of these are true, the less you look like an employee, and the safer your small-business deduction is.

If you're a contractor with a healthy roster of clients who control their own work, you're the person incorporation was designed for. If you're effectively one company's staff member with a corporation wrapped around you, no amount of formatting on an invoice changes the substance, and the CRA looks at substance.

You also get limited liability: the corporation's contractual obligations and debts are generally its own, not yours personally, which matters as your projects and the dollars involved grow. And many larger clients and agencies simply prefer, or require, contracting with an incorporated business rather than an individual, so incorporating can be the price of admission to bigger work.

A reasonable gut-check: once you're consistently netting north of $60,000–$100,000, have (or are building) multiple clients, and don't need all the income to live on, sit down with an accountant and run the numbers. That's when incorporating tends to earn its roughly $580 setup and yearly accounting.

Likewise, if your contracting income is modest and you draw all of it out to live, the tax-deferral benefit is small and may not cover the ongoing costs. And if your "business" is really you personally, with no separation of tools, control or clients, the liability protection is weaker than it looks: courts can disregard the corporation where it's a mere shell for what is really personal work.

None of this is a reason to avoid incorporating when it fits. It's a reason to be honest about your actual situation first. If you're unsure which side of the line you're on, a short conversation with an accountant before you file is the cheapest money you'll spend.

We prepare your Articles of Incorporation, By-law No. 1, organizing resolutions and share registers, and file with the Ontario Business Registry, accepted immediately, with your digital minute book emailed the same day. CorpStart prepares the incorporation documents; whether incorporating helps your specific contracting arrangement, and whether you'd pass the PSB test, is a question for your accountant, and we'd rather you ask it first.