Should I incorporate my trades business in BC? The numbers

You should incorporate a BC trades business when it consistently earns more than you need to take out to live, because profit left in a corporation is taxed at 11% (9% federal plus 2% BC on the first $500,000) instead of your personal rate, which reaches 53.5% in BC. If you spend everything the business makes, incorporating saves little or no tax and adds cost.

Liability, selling later, and lender or bonding requirements matter too, but the tax question is the one most owners ask, so this page runs the numbers.

The rates that drive the answer

Corporate, active business income up to $500,000: federal small business rate 9%, BC small business rate 2%, combined 11% (CRA: corporation tax rates; BC government: corporate tax rates). Above $500,000, or outside a Canadian-controlled private corporation, the general rates apply: 15% federal plus 12% BC, 27% combined.

Personal, 2026 federal brackets (CRA: tax rates and brackets): 14% to $58,523; 20.5% to $117,045; 26% to $181,440; 29% to $258,482; 33% above.

Personal, 2026 BC brackets (BC government: personal tax rates): 5.6% to $50,363; 7.7% to $100,728; 10.5% to $115,648; 12.29% to $140,430; 14.7% to $190,405; 16.8% to $265,545; 20.5% above.

A sole proprietor earning $150,000 pays 40.7 cents of tax on the next dollar (26% + 14.7%). A corporation pays 11 cents and keeps 89 to reinvest, pay down a truck loan, or hold for a slow winter.

Integration: the tax is deferred, not avoided

When the corporation later pays you that money as a dividend, you pay personal tax on it. The system is built so that corporate tax plus personal dividend tax roughly equals what you would have paid as a sole proprietor. Non-eligible dividends (the kind paid from income taxed at 11%) are grossed up by 15% on your return, and you get a federal dividend tax credit of 9.0301% of the grossed-up amount (CRA: T5 slip instructions) plus a BC dividend tax credit (BC government: dividend tax credit; check the current rate for the year you receive the dividend).

So the benefit is mostly timing: you choose when the money comes out and at what personal bracket. Spreading it over years, or drawing it in a low-income year, is where the real saving is. Taking it all out the year it is earned lands close to the sole proprietor result.

Worked example: a Kelowna electrician earning $150,000

Net profit $150,000, owner needs $80,000 to live. CPP and personal credits are left out to keep the comparison clean; they reduce both sides.

Sole proprietor. Federal tax on $150,000: $8,193 + $11,997 + $8,568 = $28,759. BC tax: $2,820 + $3,878 + $1,567 + $3,046 + $1,407 = $12,718. Total about $41,500. All $150,000 is taxed whether or not he spent it.

Incorporated, $80,000 salary. Corporation: $150,000 − $80,000 = $70,000 taxable, tax at 11% = $7,700. Owner: federal $8,193 + $4,403 = $12,596; BC $2,820 + $2,282 = $5,102; total $17,698. Combined tax this year about $25,400.

Difference: about $16,100 less tax this year, and $62,300 stays inside the company. That $62,300 is taxed when it comes out as dividends, but drawn in a year when he sits in the 20.5% federal bracket rather than 26%, or in retirement, the overall bill ends lower. Pulled out as a dividend the same year, the saving mostly disappears.

Costs on the other side. BC incorporation is $350 plus a $30 name request, and the annual report is $43.39 (BC government: incorporated companies). The real ongoing cost is a separate T2 return, financial statements, a payroll account if you take salary, and a corporate bank account. Budget $2,000 to $4,000 a year for a small operating company. If the deferral is worth less than that, do not incorporate yet.

A simple decision rule

  • Profit under about $80,000 and you spend it all: stay a sole proprietor. Nothing to defer.

  • Profit $100,000 to $150,000 with $30,000 or more left in the business each year: incorporating usually pays for itself in the first year.

  • Profit over $150,000: incorporate. The deferral alone is worth $10,000 or more a year.

  • Real liability exposure (roofing, excavation, gas fitting): consider incorporating for the liability shield regardless of tax.

Rates verified on 2026-10-25.

FAQ

Will incorporating cut my tax in half? No. It cuts the tax on money left in the company to 11%. Money taken out is taxed personally, and the total over time is designed to be similar. The saving is deferral and timing.

Does incorporating protect my house if a job goes wrong? The corporation's debts are generally its own, but lenders and suppliers often want a personal guarantee, and you remain responsible for your own negligence. It helps; it is not a wall.

Can I pay myself dividends instead of salary? Yes. Dividends avoid CPP contributions but create no RRSP room or CPP benefits. Most owners use a mix and rerun the comparison each year.

Do I lose the small business rate if I earn too much? The 11% rate covers the first $500,000 of active income; above that the 27% general rate applies. Passive investment income inside the corporation can also reduce the limit; check the current rules if the company holds investments.

A trades owner should talk to an accountant when profit passes $100,000 or when more than $30,000 a year is being left in the business, because that is the point where the deferral outweighs the compliance cost.

How Murtagh & Co. Can Help.

We work with trades and construction businesses across the Okanagan on bookkeeping, GST, payroll, tax and the numbers behind your pricing.

Murtagh & Co. was founded by Devon Murtagh, CFA, FRM, a former trades business owner.

Prefer to talk it through? Book a free 30-minute call, or reach out at info@murtaghco.ca.

More free tools for contractors: murtaghco.ca/contractor-toolkit