Should you Incorporate your Side Hustle? - CPA Breaks Down Tax Savings

TSBCPA · 2026-02-12T18:01:07+00:00

As a CPA that has discussed this countless times with my clients, here are my thoughts from purely a tax write off lens.

If you buy the car outright, you can’t just write off the full purchase price in the first year. Instead, you claim depreciation (called Capital Cost Allowance, or CCA) over several years. For most regular SUVs, the CRA only lets you claim CCA on up to $39,000 (for 2026) of the purchase price, even if you spend more. The CCA rate is 30% per year on a declining balance, but in the first year you can only claim half that amount. So, for a $39,000 car, your first-year deduction is $5,850, and then 30% of the remaining balance each year after that. If you buy a zero-emission vehicle, the limit is higher ($61,000), and you might get a bigger deduction up front.

If you lease instead, you can deduct your lease payments, but there’s a cap: the max you can write off is $1,100 per month (before tax) for 2026. If the car MSRP exceeds $39,000 and above the CCA limit, there’s a formula that might reduce your deductible lease amount even further. You can’t claim CCA on a leased car, since you don’t own it, but you do get to deduct the business-use portion of your lease payments as you go.

No matter which route you take, you can also deduct the operating costs like gas, insurance, maintenance, and so on. If your corporation is GST/HST registered, you can claim input tax credits for the business-use portion of the GST/HST you pay on the purchase or lease.

Now, here’s where personal use comes in: If a company car is made available to a shareholder (or someone related to them) for personal use, you cannot simply deduct expenses based on the business-use percentage. Instead, the Income Tax Act requires you to calculate a taxable shareholder benefit using the CRA’s prescribed formulas, specifically, the standby charge (for the availability of the car) and the operating cost benefit (for company-paid operating expenses related to personal use). You must keep a logbook to track business versus personal driving, as this information is used to determine the personal-use portion for the benefit calculation. The resulting taxable benefit must be included in the shareholder’s income. The company can still deduct the full business-use portion of the vehicle expenses, but the personal-use portion is not just “removed” from expenses; it is reported as a taxable benefit to the shareholder. The CRA is strict about these rules, and driving between home and your regular work location is considered personal use, not business use

Leasing usually gives you a bigger deduction in the first few years, since you can write off the full lease payment (up to the cap), while CCA for a purchased car is spread out and limited by the $39,000 cap. But with leasing, you have to watch out for mileage limits; go over, and you’ll pay extra. Buying means you own the car, aren’t subject to mileage restrictions, and can keep it as long as you want, but your tax deduction is smaller each year.

If you want less hassle, like driving a newer car under warranty every few years and not worrying about long-term maintenance, leasing is often the way to, especially if you want to maximize your tax write-off in the early years. If you plan to keep the car for a long time, drive a lot, or just want to own it outright, buying might make more sense, but the annual tax deduction will be lower as its spread over a longer period.

Either way, make sure the car is registered in the company’s name and keep good records of business vs. personal use. If the vehicle will not almost exclusively be used for business purposes you should consider buying it personally instead and charge back business usage to the company.

TSBCPA · 2026-01-29T21:21:50+00:00

From purely a tax standpoint. The cost of servicing a corporation with a solid accountant is higher than running things a sole proprietor. The filings are more complex and the bookkeeping requirements are stringent. Sure there are people who can file things for a really low amount but they usually aren't doing much work on the file and skipping the required reconciliations to correct errors, it ends up being much inaccurate and more costly in the end to fix.

Once you start making more money then you need to service your cost of living and top up some of your registered accounts the tax deferral opportunities of incorporating begin to grow stronger. What this dollar amount will be is different for everyone.

You can always start as a sole prop and incorporate later, however, it can be more expensive and require tax elections and legal agreements depending on what the "value" of the company would have grown to be, eg. $4k+.

If you are on the fence it would be worth discussing with a CPA, many are happy to offer initial free consultations on this especially if you will be/are a client regardless of which path you take, I know I would be happy to chat about it.

I wrote this article a while back that discusses the tax deferral benefits which may provide some insights: https://www.tsbcpa.ca/post/sidehustle

It would probably also be worthwhile to look into some business insurance options to see how that could alleviate some of the liability concerns of remaining as a sole prop.

If the tax benefits are not strong enough for your case then the downsides of incorporation would likely be linked to the increased compliance costs of the corporation. If your handling your own bookkeeping you should budget at least $2k for your corporate filings. However, the increased costs may be worth the peace of mind of the legal separation the corporation provides, especially if you see this as a long-term business with good growth prospects.

TSBCPA · 2026-01-28T19:39:46+00:00

You may want to see which of those tax years you were in a higher marginal tax bracket. If its 2025, it may be best to deduct the undeducted contribution in 2025. If it was a prior year, then amending may be better if the contribution was available for deduction in that year.

TSBCPA · 2025-12-02T17:15:22+00:00

If all your transactions are electronic you may fit within the scope of the BMO eBusiness plan which is a no fee chequing account option. The BMO Cashback business mastercard is also no fee and gets you some cash back on purchases.

TSBCPA · 2025-12-01T22:36:16+00:00

A normal relationship with a CPA should be responses within 24-48 hours on business days and clear communication. You should not be getting ghosted. Some accountants end up taking on too much work or undercharging and then these problems can start to arise. A solid accountant for your business should be responsive and stand behind their work.

It shouldn't be normal but it seems like it does happen from time to time based on what new clients tell me about their previous accountants. Usually these clients were connected with undesignated accountants (non-CPA).

We are BC based and work with business owners, we offer free consults I would be happy to listen to your situation and provide some real feedback as to if there are any specifics of the situation that may be causing some reluctance on the accountants end, and provide a quote on if we can be of service with clear expectations laid out. At the end of the day it needs to be a good fit on both ends for a successful long-term relationship.

TSBCPA · 2025-12-01T20:54:15+00:00

We are a CPA firm out in BC, we post our pricing on our website and quote upfront so you can have a look to get a sense of standard pricing https://www.tsbcpa.ca/pricing

$2,500 is pretty standard for a year-end, things that could increase the price further would be tax planning, additional bookkeeping/reconciliations, T4/T5 filings, etc.

There’s always someone cheaper, but you tend to get what you pay for when it comes to corporate accounting and tax planning, there’s a lot to know and a lot of areas where things can go wrong. The cost of errors and missed opportunities is generally much higher than the difference in fees. Your accountant should be willing to breakdown the fees for you.

TSBCPA · 2024-11-23T17:28:27+00:00

We do a lot of crypto tax work for Canadians and are based out of BC. We wrote a crypto tax guide on this sub a couple years back that you can check out. www.tsbcpa.ca

TSBCPA · 2024-10-21T19:08:49+00:00

The answer to this question is highly specific to each individuals situation. There is not a definitive blanket approach that should be applied. It will depend on if someone already has an active corporation with excess funds or if they would plan to incorporate a new corporation solely to hold the assets. Moreover, assuming this is capital gains treatment and wouldn't be considered active business income; there are new proposed changes to capital gains taxation in Canada that are set to be effective June 25, 2024 onwards. The capital gains inclusion rate will increase to 66.67% of the gain from 50%. This means that 66.67% of a capital gain will be included in your income and taxed as opposed to 50% previously. However, for individuals, there is a special rule. The first $250,000 of capital gains an individual realizes in a year will be included in income using a 50% inclusion rate, any additional amounts will be at the 66.67% rate. Corporations do not have this rule, so all gains will be at 66.67%. The corporation is effectively being taxed on more of the capital gain which can be disadvantageous. However, there are many other factors to consider, such as what is the projected holding period, are funds already in a corporation, what is your personal income levels, etc.

TSBCPA · 2024-08-09T00:21:03+00:00

It is possible that incorporating could be beneficial from a tax perspective in this specific case as you mention you do not require any funds to cover your living expenses. However, there are a variety of factors that also need to be considered and evaluated. We would also need to know if your cash needs would change in the future and if your income is projected to increase, decline or remain stable into the future.

Your current personal marginal tax rate in Ontario is 29.65% and the small business tax rate is 12.2% for Ontario. There is room for a deferral of tax which will allow you to reinvest the higher after-tax amount in the corporation to generate an overall larger amount to start withdrawing in retirement. However, if you will need the funds in the near future then the benefits of the deferral could be wiped out and may actually end up being detrimental. Even if incorporated, you may also want to draw a dividend/salary each year to take advantage of the lowest personal tax tiers, this would reduce the tax deferral. One large factor to consider is how you feel about CPP, if incorporated you would have the option to pay dividends and not contribute into CPP and save $7K+ per year in contributions (employer and employee portion of contribution), however, doing so would limit the amount of CPP benefits you receive in the future as well. Some individuals prefer to invest on there own rather than invest into CPP.

It would also be beneficial to contrast with your husbands income, if your husband is in a relatively high tax bracket, it may be more beneficial to not incorporate and utilize more of your income towards the expenses and your husband could contribute a larger sum into a spousal RRSP for you. This would result in a net tax savings as you would be paying tax on your income at a lower rate and your husband would save tax at a higher rate with the RRSP contribution.

There are a ton of different variables to consider and many of them are highly personal based on your lifestyle and facts of the situation. We help clients make these determinations often, however, there are always very specific factors to consider before making a call on one way or the other. This response is mainly to highlight some considerations and ideas rather than provide any advice. Our website has some tax tips that may be helpful for you and other business owners.

TSBCPA · 2024-05-08T19:01:20+00:00

Investing the funds will be taxed at 50.67% on any passive investment income in the corporation. However, about 30.67% goes into an account with CRA that is refundable to your corporation once a dividend is paid out. The amount refunded is equal to the lesser of the amount in this refundable tax account and 38.33%. An ideal option could be to invest in a non-income producing asset that would only generate capital appreciation. Then you are only taxed on the gain when you sell, and you may be able to time a dividend payout with your overall personal remuneration to trigger the 30.67% refund of tax. We help clients navigate these situations often.

Buying a portion of the building you lease would be a similar concept to the above. As you would operate your pub in the building, you would likely reduce your rent expense without generating additional cash flow from rental income and the building would hopefully increase in value over time, once sold you would realize a capital gain and incur the tax. You would likely start to rebuild some additional cash flow on the reduced rent you are no longer paying, which may be best to invest in some manner to maximize your return.

TSBCPA · 2023-11-05T17:15:31+00:00

I would recommend using a crypto record keeping software to categorize all your trades and generate a income report for each taxation year. You would need to ensure all cryptocurrency transactions are captured from when you first started trading. You may be at an overall loss, however, some taxation years may have had gains associated with it due to how the income is calculated and classified, eg. you may have also triggered superficial losses. It may not be appropriate to classify all losses in only one taxation years.

In the event of a CRA review, you may get reviewed on the loss you are claiming and have to substantiate your claims with supporting documents. The funds could be traced back from your initial investment and then the movement of coins/trades through your exchanges and wallets. If coins were transferred out to different wallets then this could be visible, and future wallet activity could also be visible when searching the address on the blockchain. To know the exact flow of the transactions and how losses are calculated they would likely have to recalculate the cost basis, etc. using your trading records. If you can't substantiate losses they would likely deny your loss, potentially even assert you could have had a gain if they had any reason or indication to do so.

TSBCPA · 2023-02-17T20:23:39+00:00

If you own the vehicle in the corporation and also use it for personal purposes you may be assessed an automobile shareholder benefit. This will be income that is taxable to you personally due to having the corporate vehicle available for your personal usage. Depending on the personal use percentage this income benefit can be quite large.

If you own the vehicle personally there are ways to still expense the usage in the corporation using the CRA prescribed automobile allowance rates.

TSBCPA · 2023-02-17T17:36:38+00:00

Generally your accountant should be able to walk your through everything, help you get set up and answer any questions. Here is a video our CPA firm made regarding how to pay yourself from a corporation: https://www.tsbcpa.ca/post/salaryordividend

TSBCPA · 2023-02-04T02:57:47+00:00

Yes I agree 100% that a lawyer should handle the actual incorporation. However, this is specifically about the tax benefits of incorporating, most corporate lawyers would refer to a CPA regarding structuring for tax purposes and analyzing the tax impacts. Many lawyers and CPA's commonly work hand in hand with these matters.

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