BC Incorporation for Self-Employment

[mgnlky]

After working with a recruiter to find employment, she has informed me that I need to 'self-incorporate' (ie, form a limited liability company) to do consulting work. The process of forming a LLC is pretty straightforward, however I have a lot of questions around how the salary and taxes will work since there will only be myself employed. Does anyone have experience with this who could shed light on some of my questions?

 

[torontosm]

After working with a recruiter to find employment, she has informed me that I need to 'self-incorporate' (ie, form a limited liability company) to do consulting work. The process of forming a LLC is pretty straightforward, however I have a lot of questions around how the salary and taxes will work since there will only be myself employed. Does anyone have experience with this who could shed light on some of my questions?

Sure, ask your questions and I'm sure someone will be able to help you.

 

[mgnlky]

1) If the client is paying the corporation directly, what is the best way to pay yourself? I assume I can draw a regular salary using an accounting/payroll software which will handle the tax portion?

2) If I'm paying taxes on the income, and the corporation is paying taxes on the 'sales for services provided,' aren't I getting taxed twice for the same income? [In this case, I'm not exactly sure it'd be beneficial for me to create a business because I'm going to be losing money?]

 

[torontosm]

1) If the client is paying the corporation directly, what is the best way to pay yourself? I assume I can draw a regular salary using an accounting/payroll software which will handle the tax portion?

2) If I'm paying taxes on the income, and the corporation is paying taxes on the 'sales for services provided,' aren't I getting taxed twice for the same income? [In this case, I'm not exactly sure it'd be beneficial for me to create a business because I'm going to be losing money?]

1) You can draw a regular salary, but most small business owners opt not to as those funds are taxed at a higher rate. Instead, they pay themselves through dividends.
2) When you charge your client (assuming this is all in Canada), you have to charge them GST/HST as well. This amount is intended to be remitted to the government. However, when doing so, you are allowed to net out the GST/HST that you have paid on business expenses. The HST is the only tax your client will be paying, so no, you are not getting double taxed. And, incorporating is still much better from a tax perspective than serving as an employee.

 

[mgnlky]

1) Are dividends allowed to be paid bi-weekly/semi-monthly though?

Basically the situation is this: The recruiter at a staffing agency is pushing me to create a consulting business because it makes their life easier. They'll negotiate the price (say, 45$/hr to me, 18$/hr to the agency) with the client. So if the business is paid 7200$/month, how am I allowed to draw a normal salary to live on? I understand from a tax perspective that incorporating is better, but I've read 20 different things on how to actually get paid from said corporation.

 

[torontosm]

1) Are dividends allowed to be paid bi-weekly/semi-monthly though?

Basically the situation is this: The recruiter at a staffing agency is pushing me to create a consulting business because it makes their life easier. They'll negotiate the price (say, 45$/hr to me, 18$/hr to the agency) with the client. So if the business is paid 7200$/month, how am I allowed to draw a normal salary to live on? I understand from a tax perspective that incorporating is better, but I've read 20 different things on how to actually get paid from said corporation.

You can pull out money from your business throughout the year, and then claim it as dividends when you file at year end (assuming your business shows a sufficient profit). you can also claim back a portion of your rent (if you are working from home) and other business-related expenses which will lower your overall tax burden.

 

[Amardanan]

I can only speak from the side of the director of a business with up to 10 employees. I don't know precisely how the laws apply to a firm where only one person legally works, but I think it's not much different from a more prominent firm. I advise you to read the articles on payrollindex.com since there is a lot of helpful information on this topic; I once found this article and am very grateful for this, since I understood a lot for myself. I hope that you will find answers there because it is essential to understand how money works inside the company in order not to go bankrupt ahead of time and not to lose some part of the profit simply out of ignorance

 

[jclarke99]

After working with a recruiter to find employment, she has informed me that I need to 'self-incorporate' (ie, form a limited liability company) to do consulting work. The process of forming a LLC is pretty straightforward, however I have a lot of questions around how the salary and taxes will work since there will only be myself employed. Does anyone have experience with this who could shed light on some of my questions?

Here's a user-friendly link to start with...

https://diaryofatorontogirl.com/canadian-income-taxes-freelancer/