Need incorporation Tax benefits ideas

[cecnov2012]

I'm planning to incorporate as soon as I finish my landing. By going through various online articles I was able to get an idea that incorporation gives you tax benefits if your income qualify for the small business category.

I understand if you incorporate, you will have a business account from which you would be moving funds to your personal account as payment or dividends. I'm clear that for the funds in the business account I can pay corporate tax but for the funds that move into your personal account, it is like income for the individual so he/she would be entitled to an income tax. So anyways you end up paying the usual personal income tax, hence I'm not clear how incorporation gives you tax benefits.

It would be great people who are already into this can give a better idea about how one can get maximum tax benefits after incorporation.

 

[Manjot Singh 08]

If you have an incorporation:

You personally will not be liable for any claims since incorporation is deemed to be a separate entity. Others can only sue your company not you.
people register their cars on their incorporated company name so they can show fuel expense on T2 which you cannot on personal tax filing.
you can write off your car in the incorporation T2
you are the boss of your own company, so you can show personal income as much as you want; but you have to pay CPP on the gross you show


Nutshell, corporation would help you to show as many expenses you want to show that would help you to pay less taxes in the end

 

[cecnov2012]

If you have an incorporation:

You personally will not be liable for any claims since incorporation is deemed to be a separate entity. Others can only sue your company not you.
people register their cars on their incorporated company name so they can show fuel expense on T2 which you cannot on personal tax filing.
you can write off your car in the incorporation T2
you are the boss of your own company, so you can show personal income as much as you want; but you have to pay CPP on the gross you show


Nutshell, corporation would help you to show as many expenses you want to show that would help you to pay less taxes in the end

Thanks. So does this mean I only have to pay CPP on the personal income and not personal income tax?

 

[krishna_05]

i would recommend consulting a certified accountant. its not so easy as well, there will be lot of scrutiny for such cases, one of my friends does this and is under the lens. more so, if you have only "one" client for your company.

 

[cecnov2013]

Thanks. So does this mean I only have to pay CPP on the personal income and not personal income tax?

@CECNOV2012: I may not be of much help here, but can you share the reason for your question. This may help me once i get my PR. I am an IT Professional currently employed in Canada

 

[cecnov2012]

@ CECNOV2012: I may not be of much help here, but can you share the reason for your question. This may help me once i get my PR. I am an IT Professional currently employed in Canada

You need to incorporate if you want to work as an independent IT consultant/contractor. Without incorporation consultancies would take from $5-$10 an hour towards payroll processing from your actual hourly rate. Also without incorporation you would end up paying personal income tax.

 

[sandrazelda]

You need to incorporate if you want to work as an independent IT consultant/contractor. Without incorporation consultancies would take from $5-$10 an hour towards payroll processing from your actual hourly rate. Also without incorporation you would end up paying personal income tax.

In summary, I could say that incorporation will give you tax deferral but not tax savings.

If you are not to be employed by your own firm to be incorporated, you don't need to remit CPP. I assume after incorporation, all payments previously goes to your personal account will now be income/revenue for your corporation. If you are going to employ yourself, you need to remit CPP and income tax like other employees. You are going to pay corporate taxes and prepare T2 (needs to be done by professionals with credential). Otherwise, you can withdraw money from your corp. in forms of dividends (shareholder loan is also an option but you need to repay within 1 year) but giving the increasing tax rate on dividends, the advantage is decreasing. Plus, no RRSP contribution room if you receive only dividends but no other earned income.

tax consulting is complex. It's better you go to a CA firm for further advice.

 

[cecnov2012]

In summary, I could say that incorporation will give you tax deferral but not tax savings.

If you are not to be employed by your own firm to be incorporated, you don't need to remit CPP. I assume after incorporation, all payments previously goes to your personal account will now be income/revenue for your corporation. If you are going to employ yourself, you need to remit CPP and income tax like other employees. You are going to pay corporate taxes and prepare T2 (needs to be done by professionals with credential). Otherwise, you can withdraw money from your corp. in forms of dividends (shareholder loan is also an option but you need to repay within 1 year) but giving the increasing tax rate on dividends, the advantage is decreasing. Plus, no RRSP contribution room if you receive only dividends but no other earned income.

tax consulting is complex. It's better you go to a CA firm for further advice.

Thanks Sandra. Yes, I think it would be better for me to consult an accountant for more clarity.