Also, the intergration of small business and personal income tax that for the most part reduces the ability to realize any savings from deferral or tax savings on investment income.

Most brokers that arrange insurance for incorporated businesses can also offer it to sole proprietors- corporate status usually isn’t a requirement (or at least not when I last checked-about 2 years ago). Check with Anthony and Wedgwood- I have had good experiences with both. You could also check with Johnson, although I’m not sure whether they offer commercial coverage.

The good news is that Canadian Gov created several laws so the incorporation can pay several expenses that the individual can benefit as well without being taxed (legally off course!!!).

I’m actually preparing a post about that ;-)

Mark- try this link, it even cites the section of the Income Tax Act:

http://www.taxtips.ca/smallbusiness/capitalgainsdeduction.htm

I would also make this point- people under-estimate how much administration is required to run a corporation. There’s a lot of bureaucracy involved and you have to weigh the opportunity costs of sitting on a Sunday afternoon doing your books with the tax savings.

The tax savings only become significant once your taxable income is quite high too so if you make $60K as an employee and $65K of taxable income in a corporation, it may not be worth it (remember that a lot of business deductions available to corporations are also available to sole proprietors). Corporations are great tax-planning tools if you have significant taxable income (especially if you have families to spread the tax burden). Otherwise, it could be not be worth it. In other words, speak to your profession before you incorporate to see whether the pros outweigh the cons.

Chuck mentions it becoming a taxable benefit if the owner is the beneficiary. Does that mean tax will be paid on the payout when the owner dies?

Here’s an excerpt from http://www.mnp.ca/04library/index_taxMistakes.php

CRA has specific rules about corporate shareholder loans. Since corporations often pay tax at preferred rates, CRA is concerned that owners could take money out of their company without paying personal income tax on it. CRA specifies that if a shareholder owes money to the company on two consecutive year-end balance sheets, the principal portion of the loan must be included in the shareholder’s net income for tax purposes. It also notes that a series of loans and repayments will be viewed as one continuous loan. This prevents the shareholder from paying the loan off just prior to year-end and then re-borrowing the money just after year-end so the loan does not show up on the balance sheet.
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Also I have an incorporated business and looked into a universal policy on myself paid by the business. There are rules concerning purchasing (universal) life insurance policies by a business. The key one being that if the corporation is taking out the policy and expensing the cost – the corporation must be the beneficiary. If you (the owner) is the beneficiary, it then becomes a taxable benefit. Any good insurance agent should be able to advise you of the specifics.

A typical scenario would be if I decided that, rather than employing me directly, I wanted my employer to hire my company to perform the work, and the company would then have me provide the services on its behalf. The goal in doing this would be to have the income from the employer accrue to the company at lower small business rates, rather than at my higher personal rate. This is a common approach for many professionals (lawyers, doctors, vets, etc.), but the PSB rules really complicate matters. You could also come within the PSB definition if you’re a consulant being hired to do work that an employee would normally perform.

The details of how PSB rules work are too complicated to go in to here, but that’s an overview. It’s enough to know that if you are going to use a corporation to provide employee services, you should check with a good accountant or tax lawyer to make sure you’re okay.

DGI, unfortunately here in Canada, passive income within a corp is taxed at the highest rate which makes it undesireable as you can imagine. In addition to that, it is taxed AGAIN upon withdrawal.

However, you can get the info in charts by province at http://www.taxtips.ca/marginaltaxrates.htm, or through the nifty calculator on E&Y’s site at http://www.ey.com/GLOBAL/content.nsf/Canada/Tax_-_Calculators_-_2008_Personal_Tax .

Hope that helps a little!

That’s a nice article. I was wondering if you could also make the same table by income and province for two other types of income
1) Work Income
2) Dividend Income from stocks

Thanks!

Dividend Growth Investor

A small point on your initial post- keep in mind that if your corporation is a personal services business, you don’t get the advantage of lower small business tax rates, regardless of your income, and your deductions are severely limited. For a PSB, incorporation can actually increase your tax burden significantly.