When Should Your Side Hustle Become a Corporation?
What starts as a passion project or a few freelance gigs can quickly grow into a legitimate source of income. As your side hustle gains momentum, you may find yourself wondering:
Should I incorporate my business?
While there’s no one-size-fits-all answer, incorporating can offer significant advantages- especially if you're earning consistent income or planning to grow. At our firm, we help entrepreneurs across Nova Scotia make informed decisions about incorporation every day.
Here’s what you need to know.
What Does It Mean to Incorporate in Nova Scotia?
Incorporating means registering your business as a separate legal entity — either provincially (e.g., in Nova Scotia) or federally.
Once you incorporate:
Your business income is taxed separately from your personal income.
The corporation can own assets, sign contracts, and assume liabilities.
You become a shareholder (and usually a director) of your company.
This step creates legal and financial separation between you and your business — something sole proprietorships don’t offer.
Signs It Might Be Time to Incorporate Your Side Hustle
1. You're Earning More Than You Personally Need
If your business is generating more income than you need to live on, incorporating allows you to leave profits in the company and benefit from lower corporate tax rates.
In Nova Scotia, the small business tax rate is currently around 11.5% on the first $500,000 of active income (dropping to 10.5% on the first $700,000 starting April 1, 2025). This is significantly lower than most personal tax brackets.
2. You Want to Limit Personal Liability
Operating as a sole proprietor means you’re personally responsible for any business debts or legal claims. Incorporating protects your personal assets by legally separating them from your business.
3. You Want to Be Seen as More Professional
Clients and companies may be more likely to hire you if you operate as a corporation — especially in fields like consulting, IT, design, and marketing. Some contracts even require you to be incorporated.
4. You’re Planning to Expand
Hiring staff? Leasing space? Investing in equipment? Incorporation provides structure and opens the door to business financing, deductions, and long-term growth strategies.
When You Might Want to Wait
1. Your Income Is Low or Unpredictable
If you're still testing the waters or your revenue fluctuates, the upfront and ongoing costs of incorporation might not be worth it—yet.
2. You Need to Withdraw All Income Personally
One of the biggest tax advantages of incorporation is being able to leave money in the business. If you’re relying on every dollar to cover personal expenses, incorporation won’t provide much of a tax deferral benefit.
3. Incorporation Brings Added Complexity
Running a corporation means additional responsibilities, including:
Filing a separate corporate tax return (T2)
Maintaining formal financial records
Submitting annual reports and corporate renewals
Possibly managing payroll if you pay yourself a salary
Tax Tip: Salary vs. Dividends
As a business owner, you’ll need to choose how to pay yourself:
Salary: Deductible for the corporation, generates RRSP contribution room, and gives you a T4
Dividends: Simpler and potentially more tax-efficient, but no RRSP room or T4
The right approach often depends on your income level and financial goals — and may change from year to year. An accountant can help you choose the best option.
How Much Does It Cost to Incorporate in Nova Scotia?
Initial costs:
Legal or incorporation service fees: $500–$1,500+
Nova Scotia Registry of Joint Stock Companies filing fee: ~$337
Accounting setup and advisory
Ongoing costs:
Annual tax filing (T2 corporate return)
Bookkeeping, payroll, and GST/HST remittance (if applicable)
Annual corporate renewal fee with the province
Need Help Deciding if You Should Incorporate?
Incorporating your side hustle is a big step — but it can also be a smart move if your business is growing. At our firm, we specialize in helping freelancers, consultants, tradespeople, and small business owners in Nova Scotia make the transition smoothly.
Not sure if incorporation is right for you?
Let’s talk. Book a free consultation and we’ll walk through your business, your goals, and whether incorporation makes sense for your situation.
Disclaimer: The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.