Ready to convert your sole proprietorship to a corporation in Ontario? You cannot simply flip a switch. Instead, you incorporate a new company, transfer your business assets into it (ideally using a Section 85 rollover to defer tax), and then wind down the sole proprietorship. Here is the practical, step-by-step process.
Should You Convert Yet?
Converting adds cost and paperwork, so it should solve a real problem. Most Markham and GTA founders make the move when one or more of these is true:
- Profits are consistently strong. Once you are leaving money in the business rather than spending every dollar, the lower corporate tax rate and the ability to defer personal tax start to pay off. If you are unsure whether you have hit that point, our guide on whether you should incorporate yet walks through the numbers.
- Your liability risk is rising. Signing leases, hiring staff, carrying inventory, or working in a field where a client could sue all make the limited liability of a corporation valuable.
- You want to look established. Corporations can be easier when dealing with larger clients, lenders, and investors.
If you are still weighing the trade-offs, start with our comparison of a sole proprietorship versus incorporation. If incorporation clearly fits, read on. One reassuring point up front: converting does not mean losing the years you have already put in. Your customers, your brand, and your track record all come with you — what changes is the legal and tax wrapper around the business, not the business itself.
How to Convert a Sole Proprietorship to a Corporation: Step by Step
The core idea is simple: a corporation is a separate legal entity, so you are not renaming your existing business — you are creating a new one and moving everything into it. Here is the sequence.
| Step | What to do |
|---|---|
| 1. Incorporate the company | Register a new Ontario (or federal) corporation, including a NUANS name search, articles of incorporation, directors, and share structure. |
| 2. Get a new Business Number | The corporation needs its own BN; a corporate income tax (RC) account is set up with it. |
| 3. Open corporate accounts | Register new GST/HST and, if needed, payroll program accounts under the corporation, and open a corporate bank account. |
| 4. Transfer your assets | Move business assets (equipment, goodwill, inventory) into the corporation — ideally via a Section 85 rollover to defer tax. |
| 5. Reassign contracts | Assign or re-sign leases, supplier deals, and client contracts in the corporation's name. |
| 6. Wind down the sole prop | Close the old BN and program accounts, file final returns, and cancel the old business name if you no longer need it. |
Each step matters, but two of them — the asset transfer and the wind-down — are where founders most often need professional help. Let us break those down.
The Section 85 Rollover, Simply Explained
When you move business assets from yourself into your new corporation, the tax system normally treats it as if you sold those assets at fair market value. If your equipment or goodwill has grown in value, that deemed sale could trigger an immediate tax bill — even though no cash changed hands.
A Section 85 rollover solves this. It is a provision in the Income Tax Act that lets you transfer eligible assets into the corporation on a tax-deferred basis. In plain terms, you and the corporation agree on an elected transfer value (generally at your asset's tax cost rather than its market value), so no gain is triggered today. The tax is deferred until the corporation eventually sells the asset.
A simple way to picture it: say your business has built up goodwill and equipment now worth far more than what they cost you. Without a rollover, moving them into the company looks like a sale at today's value and taxes the increase right away. With a Section 85 election, you instead transfer them at their original tax cost, so nothing is taxed at the point of transfer — you have simply moved the assets into a new home and carried the tax history along with them.
A few things make this genuinely a job for a professional:
- It requires a joint election filed with the CRA on Form T2057, with a strict deadline. Filing it late or incorrectly can invalidate the rollover.
- The corporation must issue you shares as part of the payment for the assets.
- The elected values have to fall within prescribed limits, and getting them wrong is costly.
Do not attempt the rollover election on your own. Work with an accountant to value your assets, choose the elected amounts, structure the shares, and file T2057 correctly. This is the single most important reason to budget for professional help when you convert.
What Transfers — and What Starts Fresh
One of the most common surprises is discovering how much does not simply carry over. Because the corporation is a new legal entity, several things need to be set up again:
- Business Number (BN). The corporation gets a new BN. Your sole proprietorship's number does not become the corporation's number.
- GST/HST and payroll accounts. These program accounts are tied to the old BN and are not automatically transferred. You register new GST/HST (and payroll, if you have employees) accounts under the corporation, then close the old ones. Confirm the current registration process with the CRA or your accountant, since online registration rules change.
- Bank accounts. Open a new business bank account in the corporation's name. Keeping corporate money separate from personal money is essential to preserving your limited liability.
- Contracts, leases, and licences. As a sole proprietor, these are in your personal name. They generally need to be assigned or re-signed in the corporation's name. Review each agreement, since some require the other party's consent.
- Business name. If customers know you by your existing name, you can usually incorporate under that name (subject to a NUANS search) or register it so the brand carries forward.
- Assets. Equipment, inventory, and goodwill move via the transfer step above — with the Section 85 rollover where it makes sense.
The practical takeaway: treat the conversion as a clean handover from the old business to the new one, and check each account, contract, and licence individually.
Winding Down the Sole Proprietorship
Once the corporation is operating and your assets and contracts have moved across, close out the sole proprietorship properly so you do not leave loose ends with the CRA:
- File final returns. Report the sole proprietorship's income up to the transfer date on your personal tax return, and file a final HST return for the old account.
- Close the old program accounts. Close the old GST/HST and payroll accounts and, ultimately, the old BN once all obligations are settled.
- Cancel or keep the business name. If the corporation is now carrying the brand, you can cancel the old sole-proprietor business name registration, or let it lapse at renewal.
- Keep your records. Retain the sole proprietorship's books for the period the CRA requires, in case of a future review.
Your accountant should coordinate the wind-down with the rollover so the timing lines up cleanly — often around your fiscal year-end.
Get It Done Right the First Time
Converting a sole proprietorship into a corporation is very doable, but it touches incorporation, tax, and compliance all at once — and the Section 85 rollover in particular is not a do-it-yourself job.
Markham Office offers done-for-you incorporation for GTA founders: we handle the name search, articles, and corporate setup, and we can point you to trusted accountants for the rollover so the tax side is handled correctly. Start your incorporation with us and make the move from sole proprietor to corporation the right way.