You’re a pro. Your phone’s buzzing, the work is pouring in, and people know your name. That’s an amazing place to be. But with all that success come new headaches that have nothing to do with fixing leaks. You start wondering if the simple setup you started with is still cutting it. Sure, you’re making more money, but it feels like the taxman is taking a much bigger slice. And what if something goes sideways on a job site? Like, really sideways.
If that sounds familiar, you’re not alone. For tons of successful plumbers across Northern Canada, the conversation eventually turns to one big question: should I incorporate? But when’s the right moment to pull the trigger? Let’s get into it.
The Simple Start: Why Your Plumbing Business is Likely a Sole Proprietorship
When you first hung out your shingle, I’ll bet you started as a sole proprietor. It’s the default for most self-employed tradespeople. Why? It’s just plain easy. The law sees you and your business as one and the same. There’s barely any paperwork to get going, and taxes are pretty straightforward—you just report your business income on your personal T1 tax return. It’s the perfect, no-fuss way to get off the ground.
But as you grow, that beautiful simplicity can quickly become your biggest risk.
Are You Hitting the Financial Tipping Point?
So, when does the math really start to make sense for incorporating? While everyone’s situation is a bit different, a solid rule of thumb for trades in Canada is when your net income is consistently landing in the $80,000 to $100,000 range.
What’s the magic behind that number? It’s all about taxes. Around this point, your personal income tax bracket starts getting seriously high. As a sole proprietor, every single dollar you make gets piled onto your personal income and taxed at your top rate. Once you’re earning a good living, a huge chunk of that cash you worked so hard for goes straight to the CRA. It’s a great problem to have, sure, but it’s also the number one reason to start looking at a smarter business structure.
Beyond Your Personal Toolbox: What “Limited Liability” Really Means on a Remote Job Site
This is a huge deal, especially up North where job sites can be isolated and complicated. As a sole proprietor, there’s zero legal separation between you and your business. If your business gets sued—let’s say a pipe you installed bursts and causes a catastrophic flood—your personal assets are fair game. We’re talking about your truck, your house, your life savings… all of it is exposed.
Incorporation builds a legal firewall around your personal life. Your business becomes its own separate legal “person.” If the corporation gets sued, the lawsuit is against the company’s assets, not your personal ones. It’s a layer of protection that lets you sleep at night, knowing that one bad day on the job won’t threaten your family’s financial security.
The Big Question: How Incorporation Could Lower Your Tax Bill
Let’s get back to the money. A corporation doesn’t just protect your stuff; it can also protect your income. In Canada, incorporated small businesses can use the Small Business Deduction (SBD). This is a game-changer. It means the profits you leave inside the company are taxed at a much, much lower rate than your personal tax rate.
Think about it like this:
- Sole Proprietor: All profit flows straight to you and gets hammered by your high personal tax rate.
- Corporation: The profit gets taxed at a low corporate rate first. Then, you decide how much you need to take out to live on, either as a salary or as dividends. This gives you incredible control. You can leave money in the company to buy a new truck or equipment down the road, and you only pay personal tax on the cash you actually pull out.
This strategy is called tax deferral, and it’s one of the most powerful financial perks of incorporating.
Unlocking Northern Growth: Is a Corporation Your Key to Bigger Contracts and Grants?
Working in the Yukon, NWT, or the northern parts of the provinces brings its own unique chances to grow. Being incorporated just looks more professional. It shows you’re established and serious, which can give you a massive edge when you’re bidding on those bigger commercial or government jobs. In fact, some clients and contracts will only deal with incorporated companies.
On top of that, many of the best economic development grants and funding programs—think CanNor (Canadian Northern Economic Development Agency) or territorial governments—often require you to be incorporated. If you’ve got dreams of expanding your operation, hiring an apprentice, or buying that pricey piece of equipment you’ve been eyeing, being incorporated might just be the key that unlocks the funding.
The Other Side of the Coin: The Costs and Paperwork Involved
Okay, it’s not all tax savings and legal shields. Incorporating definitely adds more complexity and cost to your life. You’ll need an accountant and maybe a lawyer to get it set up right, which can run you a couple of thousand dollars upfront.
There are also ongoing chores:
- You have to file a separate corporate tax return every year.
- Your bookkeeping has to be much more detailed.
- You’ve got to file annual corporate registries to keep everything in good standing.
It’s more administrative work, no doubt. But for most businesses that have hit that tipping point, the cost and hassle are a small price to pay for the huge tax savings and legal protection.
A Plumber’s Checklist: Are You Ready to Incorporate?
Ask yourself these questions. If you find yourself nodding your head to a few of them, it’s probably time to have a serious chat about making the switch.
- Is your net income consistently topping $80,000 a year?
- Are you making more money than you need for your personal living expenses?
- Do you worry about protecting your personal assets (your home, savings) from a lawsuit?
- Are you thinking about hiring employees soon?
- Do you want to start bidding on bigger commercial or government contracts?
- Are you hoping to apply for business grants that require you to be incorporated?
- Are you looking for smarter ways to plan for the future, like saving for retirement or splitting income with your spouse?
Making the right call here is a huge step for your business. It all comes down to your income, your goals, and how much risk you’re comfortable with. That’s why you shouldn’t make this decision alone. Talking it over with a pro who gets the ins and outs of running a trades business up North is the smartest move you can make. For advice tailored to your exact situation, it’s always best to consult with an accountant.
Frequently Asked Questions
If I incorporate, can I still pay myself easily or does all the money belong to the company?
Yes, you can absolutely pay yourself! While the money technically belongs to the company, you’re the owner, so you call the shots. You can pay yourself a regular salary (which makes you an employee of your own company), pay yourself dividends from the profits, or do a mix of both. Each option has different tax perks, and a good accountant can help you figure out the best strategy for you.
My spouse helps with the books and answering the phone. How does incorporation affect them and our family’s finances?
Incorporation can be great for this. It opens up smart ways to do some income splitting. For instance, you could pay your spouse a reasonable salary for the work they actually do, which becomes a handy tax deduction for the business. You could also make them a shareholder, allowing them to receive dividends. The rules here are strict—the pay has to match the work—but it can be a fantastic way to improve your family’s overall tax picture.
Are there specific government grants from CanNor or territorial programs that are only available to incorporated businesses?
Yep, very often. Many of the bigger grants for business development and expansion are specifically designed for formal business structures. While some programs are open to sole proprietors, being incorporated makes you eligible for a much wider range of funding and frankly, makes your application look more solid and professional to the people handing out the money.
What’s a realistic all-in cost to set up and maintain a corporation for a small business in the North for the first year?
It can vary a bit, but a good budget to have in mind for the first year is somewhere in the $1,500 to $3,500 range. That generally covers the legal and accounting fees to get registered and set up properly, plus the cost for your first corporate tax return. After the first year, the annual costs to keep everything filed and up-to-date are much lower.
I do a lot of work on First Nations’ land. Does my business structure impact my ability to get contracts or form partnerships with Indigenous development corporations?
It certainly can. An incorporated business is often seen as more stable, permanent, and professional—a huge plus when you’re bidding for contracts with First Nations governments or looking to partner with their economic development corporations. A formal corporate structure gives you the legal foundation you need for joint ventures and other partnerships, which are incredibly common on major Northern projects.