Personal vs. Corporate Taxes: What’s Best for Toronto Entrepreneurs?

When you're building something from scratch, fueled by late nights, bold dreams, and too much coffee, every decision counts. And taxes? They're not just numbers on a form. They can shape your business journey. Whether you’re just getting your hustle off the ground or scaling up fast, knowing the difference between personal and corporate taxes can seriously shift your bottom line. At Roberts & Company Professional Corporation, we’ve spent over 30 years guiding passionate entrepreneurs across Aurora, Newmarket, and the GTA through smart, strategic tax decisions, because your vision deserves the best financial footing.

Understanding Personal Taxes for Entrepreneurs

Running your business as a sole proprietor or in a partnership? Then, personal taxes are your playing field. In Ontario, whatever your business generates is added to your personal income and taxed at increasing rates. The more you earn, the more the taxman takes. It’s simple on paper, but it can sneak up on you fast if you’re not planning ahead. Knowing how personal taxes work is key if you want to keep more of what you earn and fuel your next big move.

Benefits of Personal Taxes:

• Simplicity: Filing is straightforward, especially with our Personal Tax Planning and Bookkeeping Services.
  

• Loss Deduction: Business losses can offset other personal income, reducing your overall tax burden.
  

• Lower Costs: No need for separate corporate filings or financial statement preparations.

Drawbacks:

• Higher Tax Rates: Ontario’s top personal tax rate can exceed 53% for high-income earners.
  

• Limited Tax Planning: Fewer opportunities for income splitting or tax deferral compared to corporations.
  

• Liability: You are personally liable for business debts and obligations.

Our team at Roberts & Company can guide you through these complexities, ensuring your personal tax situation is optimized for your entrepreneurial journey.

The Corporate Tax Advantage in Ontario

Incorporating your business means it becomes a separate legal entity, subject to corporate tax rates. Ontario’s small business corporate tax rate is significantly lower than the highest personal tax rates, making incorporation an attractive option for growing businesses.

Benefits of Corporate Taxes:

• Lower Tax Rates: The first $500,000 of active business income gets taxed at just 12.2% in Ontario when you qualify for the small business deduction, that’s both federal and provincial combined.
  

• Tax Deferral: Leave profits in the corporation and defer personal taxes until funds are withdrawn.
  

• Income Splitting: Pay family members reasonable salaries, potentially reducing your family’s overall tax bill.
  

• Limited Liability: Protect your personal assets from business liabilities.

Drawbacks:

• Complexity: Requires more detailed bookkeeping, payroll management, and annual Financial Statement Preparations.
  

• Costs: Incorporation and ongoing compliance involve legal and accounting fees.
  

• Double Taxation: Dividends paid to shareholders are taxed again at the personal level.

Our Corporate Tax Planning and Bookkeeping Services ensure you maximize these advantages while staying compliant with Ontario’s regulations.

Key Considerations for Toronto Entrepreneurs

Choosing between personal and corporate taxes depends on several factors:

• Profit Level: Incorporation often makes sense once your business generates more income than you need for living expenses.
  

• Growth Plans: If you plan to reinvest profits, incorporation allows for tax deferral and easier access to capital.
  

• Risk Exposure: Incorporation limits personal liability, a crucial factor for businesses facing higher risks.
  

• Administrative Capacity: Corporations require more paperwork, including payroll services and annual financial statements.

Roberts & Company Professional Corporation offers New Business Startup Consulting to help you assess these factors and choose the right structure from the start.

Making the Right Choice for Your Business

There’s no one-size-fits-all answer. Many Toronto entrepreneurs start as sole proprietors and incorporate their businesses as they grow. Our experienced CPAs can help you weigh the benefits and drawbacks, ensuring your tax strategy aligns with your goals. We also provide payroll services in Newmarket and the GTA, so you can focus on growing your business while we handle the numbers.

Contact Roberts & Company Professional Corporation today for a free initial consultation. Let us help you establish a solid financial foundation for your entrepreneurial success.