Is there an advantage of incorporating when the business is primarily online?

Since incorporation is primarily a tax question, the only time the incorporation issue matters is when your business is registered outside of your home province or country. Many online businesses are operated globally by Canadians who derive most of their income from outside the country.

Whenever a business considers incorporation, it should be concerned with two issues. First, after a certain income level is reached, it is more tax advantageous to incorporate, because tax rates are lower and many expenses can be deducted. And second, incorporation creates a business entity that is separate from the owner, putting the business owner at a more arms-length distance from anyone who might make a legal liability claim.

Generally because of the cross-border implications involved in conducting business online, it is probably worth it to eventually incorporate an online business. Currency exchange issues, customs situations, the multiple-country locations of virtual staff, and other issues common in the online world can severely complicate business operation. It is probably preferable to separate the business's tax situation from the operator's personal tax situation.