Is Incorporating in British Columbia Worth It for Contractors and Consultants?

Are you a contractor or consultant wondering if it’s time to get incorporated? Maybe you’re hitting six figures and feeling that tax bite a little too hard. Or maybe a client asked if you're incorporated and you weren’t sure what to say. Many business owners reach this stage and start asking: should I incorporate my consulting business? It’s a big move. It can save you a lot of money but only if it fits your situation and is structured correctly. So let’s walk through exactly what you need to know to make the right call.  

Key Takeaways

• Incorporating can lower your tax bill, protect your assets, and support long-term growth
• If you're earning more than you spend personally (typically around $100K+), it’s worth reviewing
• Contractors and consultants must structure incorporation carefully to avoid PSB classification and losing tax benefits.
• Setup costs, annual filings and admin work are part of the deal
• Talk to a professional (like us at CJCPA) before making the move

 

So, Should I Incorporate My Consulting Business?

Here’s the short version: if your business is bringing in consistent income, especially over $100,000, and you don’t need to pull every dollar out for personal use, incorporating in BC could be worth it. It allows you to pay less tax on retained income, protect your personal assets, and potentially sell your business later with better tax treatment. But if you're just starting out, still riding the income rollercoaster or effectively working like an employee for one client, staying a sole proprietor might be the safer option for now.  

Why Contractors and Consultants Choose to Incorporate

Lower Taxes

BC’s small business corporate tax rate is approximately 12% on active business income, compared to the top personal rate of 53.5%. If you don’t need all the money you earn personally, incorporation allows you to defer taxes and reinvest in your business.  

Income Splitting

You may be able to pay dividends to a spouse or adult family member, helping reduce the total tax paid across your household.  

Limited Liability

When you’re incorporated, your business is legally separate from you. This helps protect your personal assets if the business runs into legal or financial trouble.  

Selling the Business One Day?

If that’s part of the plan, you could benefit from the lifetime capital gains exemption, which can shelter up to $1 million from tax when you sell.  

Looks More Professional

Clients often see incorporated businesses as more established and trustworthy.  

The Hidden Tax Risk for Contractors: Personal Services Business (PSB)

This is where many BC contractors and consultants get caught off guard. If you incorporate but essentially work like an employee for a single client, the CRA may classify your corporation as a Personal Services Business (PSB). Under the CRA’s PSB Pilot Project (2022–2024), industries heavily audited included:

• Transportation & warehousing
• Professional services
• Construction

These are exactly the sectors many contractors and consultants operate in.  

What triggers PSB classification?

Common red flags include:

• Earning most of your income from one client
• Working under the client’s direction or schedule
• Using the client’s tools, systems, or workspace
• Being economically dependent on that one client

 

Why PSB status is a big problem

If your corporation is classified as a PSB:

• Your tax rate jumps to ~44.5% in BC
• You lose the small business deduction
• Expense deductions are severely restricted
• Tax deferral benefits disappear

In many cases, contractors end up paying more tax than if they had stayed sole proprietors, the exact opposite of why they incorporated. This is why incorporation should never be done without reviewing PSB risk first.  

But Incorporation Isn’t for Everyone

Incorporating in Canada comes with trade-offs.  

More Paperwork

You’ll need to maintain corporate records, file annual returns, and keep business and personal finances separate.  

Can’t Use Losses Personally

If your business loses money, those losses stay inside the corporation and can’t be used against your personal income.  

When Does Incorporating Make Sense?

You should seriously consider incorporation if:

• You're consistently earning $100K or more
• You don’t need all your profits for personal use
• You want to save on taxes or plan for retirement through your business
• You want personal liability protection
• You operate independently (not like an employee of one client)
• You’re thinking about building something to sell later

If your income is unpredictable or heavily tied to one client, it may be better to wait — or restructure first.  

Common Questions

Should I incorporate my business if I'm the only employee?

Yes, many solo consultants benefit from incorporation but PSB risk must be assessed first.  

Can I incorporate later if I wait?

Yes. Often that’s the smarter move. Just make sure your books are clean so the transition is smooth.  

Let’s Make the Right Call Together

At CJCPA, we specialize in helping contractors and consultants figure out the smartest move for their business. If you’re asking yourself should I incorporate my consulting business, don’t guess, get expert advice. Book a consultation today and we’ll walk you through it based on your exact numbers and goals.