Benefits of Incorporating as an Individual

[Pankhuri02]

Hi All,

I am Pankhuri about to start a position at an organization based out of Toronto. They offered a position as a contract employee for now, and since it is my first time in Canada I accepted the offer.

They were paying higher $/hr as incorporation so I went for that option (which may or may not be right).

I want to knows what are the pros and cons of Incorporating as an Individual.

1. Since I will be working out of home for more than 3 days a week. Can I put in those expense at office expense (electricity, phone, food, internet etc bills)

2. What else I can use as an expense to save taxes?

Regards
Pankhuri

 

[scylla]

Hi All,

I am Pankhuri about to start a position at an organization based out of Toronto. They offered a position as a contract employee for now, and since it is my first time in Canada I accepted the offer.

They were paying higher $/hr as incorporation so I went for that option (which may or may not be right).

I want to knows what are the pros and cons of Incorporating as an Individual.

1. Since I will be working out of home for more than 3 days a week. Can I put in those expense at office expense (electricity, phone, food, internet etc bills)

2. What else I can use as an expense to save taxes?

Regards
Pankhuri

See the link below for a good outline of what you can claim and under what circumstances:

https://baranovcpa.ca/cra-approved-small-business-tax-deductions-canada/

You obviously cannot deduct any of your own food or meals when you are working from home. It's no different than if you were working in an office. You would still have to either bring your own food or buy your own food (same at the office as at home). Working at home doesn't allow you to claim food as an expense.

 

[canuck78]

There also is a difference between working in contract position and needing to incorporate.

 

[BC4life]

Do you really need to incorporate? You have access to most deductions an incorporated business has as a sole proprietor, without all the charges.

 

[canuck78]

Sounds more that he is just working a contract position vs a permanent full-time job.

 

[Copingwithlife]

Sounds more that he is just working a contract position vs a permanent full-time job.

Exactly. I would stay as a sole prop, then when comes tax time just fill in the T2125 for Business/Professional Income to show all the eligible expenses on that form. His net income then would be transferred to his T1 where he would pay the taxes off this amount. He would just have to keep in mind that if his income prior to taxes is over the small supplier threshold of 30k over four rolling calendar quarters he would have to apply for a GST/HST account number and collect the tax and submit to the Federal Government. If he hired anyone he would register for a payroll account and submit and applicable payroll taxes. To pay himself, he would submit only CPP on his T1 form. There are guidelines when applying to use ones home for business expenses. Primarily being that is the only space you use for business, and you would have clients meeting you there for business. Further information found on Canada.ca, search home expenses for business
Incorporating under the province when you could just stay as a sole prop opens up ALOT of unnecessary expenses, forms. Some people open up tax accounts, use them, and then fail to close them. This can cause alot of unnecessary headaches down the road If you incorporate,and you then close it, you have to go thru the step to dissolve the corporation. The corporation is not closed until you take all final steps to close
Main thing is if you are gong to use your home as a office, keep very good business records, so you can support any deductions you claim
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022.html

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/business-use-home-expenses.html

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002.html