It is not popular knowledge but you can work on contract without incorporating if you wish. Nowadays if you contract through an agency, they can actually handle all paperwork for you and even pay you by the hour as a T4 employee. But why let them take another cut? The whole point of going solo is for the financial benefits and the independence right?
Unless you really do not want to spend the time managing your own business, then you should definitely incoporate to reap the full benefits as a small business owner. Firstly let's explore some benefits to incorporating your small business.
limited liability
Unlike a sole proprietorship where you and the your company become one, an incorporated business has liability that is limited to the amount he or she has invested in the company. If there was a legal ruling against you as a sole proprietor, your personal assets (think your car, home etc) can be seized to pay debts of your business. If your business however is incorporated you are not responsible unless you have given a personal guarantee.
a seperate entity
A corporation is considered a seperate entity from you. Think of a large company hiring directors to run the business on behalf of the shareholders. When you start your corporation, you are essentially the sole shareholder, director and employee of the company. Your corporation has rights like an individual, it can own property, carry on business, and incur liabilites to sue or be sued. Unlike a sole propretorship, a corporation has an unlimited lifespan, even if the shareholders pass away or leave the business the business can continue to exist and even be sold easily.
income (Dividend vs salary)
A big advantage of owning an incorporated business is deciding how to pay yourself. You can choose to pay yourself a salary like a normal employee, but because you are the director and sole shareholder, you can opt to pay yourself a dividend instead. Paying yourself a dividend or a combination of both can have large benefits when it comes to your tax bill.
Of course there is more work invovled running your own business. You will have have to file a seperate tax return for your corporation. You will have to do your own book keeping to keep track of your expenses each month as well and this means increased accounting costs. But at the end of the day if you can manage the extra work, owning your own corporation can be very financially rewarding.
You should discuss your own personal situation with your accountant and lawyer. They will be able to go through in detail your benefits and responsiblities and whether it will benefit your business in the long run.