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Why Incorporating Can Lower Your Tax Rate #shorts

4 Nov 2025 · 1 min

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Bob Gauvreau explains how incorporating lets you access the small business deduction, cutting the corporate tax rate to 12.2% on up to $500,000 of income. You can then withdraw funds as salary (taxed personally, subject to CPP and EI) or dividends (taxed at a lower rate since corporate tax was already paid).

Questions this video answers

12.2%.

$500,000 of net income.

Chapters

When you set the corporation up as long as it's active business that's being incurred in the corporation we're going to be able to get access to what's called the small business deduction. There's credit for the corporation that brings our active business tax rate down to 12.2%.2% of the $500,000 of net, not gross but of net income. This provides a great incentive to earn inside a corporate entity when dealing with tax consequences it changes the options that we have as an individual to withdraw money from a company we have two options which will impact our taxes. One, to go on a salary which is a deduction inside the business it's taxed at a higher rate personally subject to Canada pension plan and potentially employment insurance withholdings and maybe even some income tax withholdings too. The other option that we have as a shareholder of the corporation is to take a dividend distribution because the company has already paid 12.2% tax. When I pull that money out as a dividend it's a reduced tax rate.