One of the most significant advantages of investing through a professional corporation is the ability to defer personal taxes. When you operate as a sole proprietor, all of your earnings are taxed at your personal income tax rate, which can be as high as 33% federally in Canada. However, when you incorporate, you can leave your earnings inside the corporation, which is taxed at a lower corporate rate.
Incorporated professionals benefit from the **small business deduction** (SBD), which allows qualifying corporations to pay a lower tax rate on the first $500,000 of active business income (the exact amount can vary depending on the province). The remaining earnings can be retained within the corporation and reinvested, allowing for the possibility of tax deferral. By leaving funds in the corporation, you can postpone personal tax liability and reinvest your income in a more tax-efficient manner.