T1 vs T2: What's the Difference for Small Business Owners?

If you operate as a sole proprietor or in a partnership, your business income is reported on your personal T1 return, typically on a T2125 statement of business activities.

If your business is incorporated, the corporation files its own T2 corporate income tax return, separate from your personal T1.

Incorporation can open up tax planning opportunities, such as income splitting and the small business deduction, but it also adds ongoing compliance requirements like separate corporate filings and minute books.

The right structure depends on your income level, growth plans, and liability concerns — it's worth a conversation before you decide, not after.