Comments on: How to Setup a Corporation in Canada http://www.milliondollarjourney.com/setting-up-a-corporation.htm Building Wealth through Saving and Investing Sun, 21 Mar 2010 05:04:40 -0400 http://wordpress.org/?v=abc hourly 1 By: 8chocolate http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-106521 8chocolate Fri, 23 Oct 2009 17:44:49 +0000 http://www.milliondollarjourney.com/?p=988#comment-106521 I'm right in the middle of launching an online business and wondered about the federal and provincial incorporating. Wouldn't an online business want to incorporate federally to protect its name etc since they are selling to all of Canada and not just within their province? Otherwise could someone have a biz with the same name in another province? I’m right in the middle of launching an online business and wondered about the federal and provincial incorporating. Wouldn’t an online business want to incorporate federally to protect its name etc since they are selling to all of Canada and not just within their province?

Otherwise could someone have a biz with the same name in another province?

]]> By: Stan http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-105076 Stan Fri, 11 Sep 2009 01:52:24 +0000 http://www.milliondollarjourney.com/?p=988#comment-105076 I'm not so sure incorporation is such a slam-dunk, unless business income is somewhat significant ($100K a year seems like a reasonable threshold). There is more paperwork, and most need the services of an accountant. If you run a business, you don't necessarily need to dividend "sprinkle" -- just hire your significant other to do work on your behalf and pay them a reasonable amount for their work. The deductions are very similar to the ones afforded a non incorporated business. Also, don't forget that dividend income from a corporation doesn't provide any RRSP room, as opposed to regular income (salary), and isn't taxed as favourably as dividends from large corporations. There are however more advanced strategies that allow one to create a retirement savings plan within a corporation. Finally, if the owner needs to withdraw most of the income every year for personal use, the tax advantages become even slimmer. So yes, there are significant advantages, but I believe the size of business and its income have a great deal to do with it. Small time operators shouldn't bother. I’m not so sure incorporation is such a slam-dunk, unless business income is somewhat significant ($100K a year seems like a reasonable threshold). There is more paperwork, and most need the services of an accountant. If you run a business, you don’t necessarily need to dividend “sprinkle” — just hire your significant other to do work on your behalf and pay them a reasonable amount for their work. The deductions are very similar to the ones afforded a non incorporated business. Also, don’t forget that dividend income from a corporation doesn’t provide any RRSP room, as opposed to regular income (salary), and isn’t taxed as favourably as dividends from large corporations. There are however more advanced strategies that allow one to create a retirement savings plan within a corporation. Finally, if the owner needs to withdraw most of the income every year for personal use, the tax advantages become even slimmer. So yes, there are significant advantages, but I believe the size of business and its income have a great deal to do with it. Small time operators shouldn’t bother.

]]> By: Susan Mladenovich, CMA http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-105025 Susan Mladenovich, CMA Thu, 10 Sep 2009 00:33:40 +0000 http://www.milliondollarjourney.com/?p=988#comment-105025 Ethan, I am an accountant with lots of consultants as clients. Before you think about incorporating, you need to be familiar (or have an accountant who is familiar with) the rules surrounding personal service businesses. I also call this the "incorporated sole proprietor". CRA has special rules about this and basically eliminate the tax advantages of incorporation if you fall into this classification. And they may also snag you under GAAR (General Anti Avoidance Rules) which is the rule by which they can disallow things if the only reason you have done something is to avoid taxes. So be careful. The general guideline for incorporating for tax reasons is when you make more than you need to live on. If you just take the money out that goes in, there are really no tax advantages. Susan Mladenovich, CMA Ethan,

I am an accountant with lots of consultants as clients. Before you think about incorporating, you need to be familiar (or have an accountant who is familiar with) the rules surrounding personal service businesses. I also call this the “incorporated sole proprietor”. CRA has special rules about this and basically eliminate the tax advantages of incorporation if you fall into this classification. And they may also snag you under GAAR (General Anti Avoidance Rules) which is the rule by which they can disallow things if the only reason you have done something is to avoid taxes. So be careful.

The general guideline for incorporating for tax reasons is when you make more than you need to live on. If you just take the money out that goes in, there are really no tax advantages.

Susan Mladenovich, CMA

]]> By: FrugalTrader http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-105020 FrugalTrader Wed, 09 Sep 2009 23:56:27 +0000 http://www.milliondollarjourney.com/?p=988#comment-105020 Marquelle, providing that the expense was for business, then yes, business expenses are tax deductible for sole proprietors. Marquelle, providing that the expense was for business, then yes, business expenses are tax deductible for sole proprietors.

]]> By: Marquelle http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-105014 Marquelle Wed, 09 Sep 2009 21:56:26 +0000 http://www.milliondollarjourney.com/?p=988#comment-105014 So are expenses tax deductible for non-incorporated businesses? So are expenses tax deductible for non-incorporated businesses?

]]> By: Tax Guy http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-105012 Tax Guy Wed, 09 Sep 2009 19:50:44 +0000 http://www.milliondollarjourney.com/?p=988#comment-105012 @ Jack: I normally go by these rules of thumb. Unless you have creditor worries or othe rliability concerns, before you incorporate, your business should be generating a profit, and should be generating enough profit to cover the additional administrative fees. If the business is operating at a loss, don't incorporate because you can use those business losses aginst income. @ Jack:

I normally go by these rules of thumb. Unless you have creditor worries or othe rliability concerns, before you incorporate, your business should be generating a profit, and should be generating enough profit to cover the additional administrative fees.

If the business is operating at a loss, don’t incorporate because you can use those business losses aginst income.

]]> By: FrugalTrader http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104977 FrugalTrader Wed, 09 Sep 2009 10:57:20 +0000 http://www.milliondollarjourney.com/?p=988#comment-104977 I'm not sure there is a hard and fast rule of thumb as other factors such as liability protection need to be weighed. However, in terms of simply dollars and cents, the cost of an annual accountant, initial setup and additional bank fees (more on this later) need to be covered (about $1k/year). For us, the tax savings (via div sprinkling) and liability protection made it an easy decision. I’m not sure there is a hard and fast rule of thumb as other factors such as liability protection need to be weighed. However, in terms of simply dollars and cents, the cost of an annual accountant, initial setup and additional bank fees (more on this later) need to be covered (about $1k/year). For us, the tax savings (via div sprinkling) and liability protection made it an easy decision.

]]> By: Kathryn http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104932 Kathryn Wed, 09 Sep 2009 02:52:54 +0000 http://www.milliondollarjourney.com/?p=988#comment-104932 Michael: I was going to ask the same question. At what point do the advantages outweigh the fees involved? Michael: I was going to ask the same question. At what point do the advantages outweigh the fees involved?

]]> By: Michael - The Fat Loss Authority http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104927 Michael - The Fat Loss Authority Wed, 09 Sep 2009 02:25:02 +0000 http://www.milliondollarjourney.com/?p=988#comment-104927 Interesting post. What's the earnings threshold for online businesses to go the corporation route, specifically here in Canada? Mike Interesting post.
What’s the earnings threshold for online businesses to go the corporation route, specifically here in Canada?

Mike

]]> By: FrugalTrader http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104896 FrugalTrader Tue, 08 Sep 2009 23:23:54 +0000 http://www.milliondollarjourney.com/?p=988#comment-104896 Jack, I know a CA who has done my business tax preparation in previous years. For me, I look for someone with business and tax strategy experience. Not just someone who knows the rules, but someone who can apply them to minimize my tax owed. Jack, I know a CA who has done my business tax preparation in previous years. For me, I look for someone with business and tax strategy experience. Not just someone who knows the rules, but someone who can apply them to minimize my tax owed.

]]> By: Jack http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104890 Jack Tue, 08 Sep 2009 22:54:02 +0000 http://www.milliondollarjourney.com/?p=988#comment-104890 Hey FT, I'm wondering what criteria you're going to use to choose your accountant? I'm currently doing my articling for my chartered accountant designation and have worked for a firm for work terms in university and now full time while going through the program. I'll fill you in on a few "behind the scenes" aspects of CA firms. I'm assuming that for $800 you're just getting a compilation done which will produce a basic set of "Notice to Reader" statements (usually no good for a bank if your bank ever wants to see financial statements since they provide no assurance) and a T2 corporate income tax return. Your contact in the firm will no doubt be a partner or senior manager, but your actual file will probably be handled by a co-op student and since it's new and probably not too complicated most likely an inexperienced co-op (kind of like how simple medical procedures are often performed by med students). I'm not going to lie to you - when I first started as a co-op, I was beyond stupid. It WILL be reviewed by someone more experienced, but you might like to know who's taking the first crack at it. If you are paying out dividends/salary from your corp you'll also have to budget for T4/T5 preparation by your accountant which is usually separate from financial statement prep costs (they are at my firm). Hey FT,
I’m wondering what criteria you’re going to use to choose your accountant? I’m currently doing my articling for my chartered accountant designation and have worked for a firm for work terms in university and now full time while going through the program. I’ll fill you in on a few “behind the scenes” aspects of CA firms.

I’m assuming that for $800 you’re just getting a compilation done which will produce a basic set of “Notice to Reader” statements (usually no good for a bank if your bank ever wants to see financial statements since they provide no assurance) and a T2 corporate income tax return. Your contact in the firm will no doubt be a partner or senior manager, but your actual file will probably be handled by a co-op student and since it’s new and probably not too complicated most likely an inexperienced co-op (kind of like how simple medical procedures are often performed by med students). I’m not going to lie to you – when I first started as a co-op, I was beyond stupid. It WILL be reviewed by someone more experienced, but you might like to know who’s taking the first crack at it.

If you are paying out dividends/salary from your corp you’ll also have to budget for T4/T5 preparation by your accountant which is usually separate from financial statement prep costs (they are at my firm).

]]> By: used tires http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104883 used tires Tue, 08 Sep 2009 22:19:04 +0000 http://www.milliondollarjourney.com/?p=988#comment-104883 One day I hope to be able to have my own corporation, it sounds like alot of work, but at the same time it sounds like alot of fun too, especially because I can become a CEO hehe. Off course it is just a title name, but it is still cool. Till then, Jean One day I hope to be able to have my own corporation, it sounds like alot of work, but at the same time it sounds like alot of fun too, especially because I can become a CEO hehe. Off course it is just a title name, but it is still cool.

Till then,

Jean

]]> By: HalfHourEarly http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104848 HalfHourEarly Tue, 08 Sep 2009 19:16:51 +0000 http://www.milliondollarjourney.com/?p=988#comment-104848 Ethan I previously changed from employer to contractor and there can be significant benefits. Dividend sprinkling can be one, as FT has metioned. There are also options such as corporation-held life insurance which may work for you. While there are tax advantages, each individual should weigh out the costs of incorpration as well. For example, as a sole earner, you will have to pay for private healthcare, insurance, you don't get paid on holidays or vacation, etc. And it is worth doing the math up front, if only to learn where you should be focusing your "frugal eye" in your new life. For me it made sense for many reasons. Having a good "tax" accountant helps a lot (one that can advise you on what you should do and not what you could have done). This is a great site. I hope to continue to learn from the bright people here and maybe even contribute a thing or two. HalfHourEarly Ethan

I previously changed from employer to contractor and there can be significant benefits. Dividend sprinkling can be one, as FT has metioned. There are also options such as corporation-held life insurance which may work for you. While there are tax advantages, each individual should weigh out the costs of incorpration as well. For example, as a sole earner, you will have to pay for private healthcare, insurance, you don’t get paid on holidays or vacation, etc. And it is worth doing the math up front, if only to learn where you should be focusing your “frugal eye” in your new life.

For me it made sense for many reasons. Having a good “tax” accountant helps a lot (one that can advise you on what you should do and not what you could have done).

This is a great site. I hope to continue to learn from the bright people here and maybe even contribute a thing or two.

HalfHourEarly

]]> By: Retired at 31 http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104830 Retired at 31 Tue, 08 Sep 2009 17:30:13 +0000 http://www.milliondollarjourney.com/?p=988#comment-104830 A year end within the last 6 months of the calendar can also be advantageous. It will permit you to push wages payable into the next personal tax year. Have you ever disclosed revenues associated with the blog? Rules of thumb vary, but I've oft heard that <100K in revenue isn't worth the incorporation route.... A year end within the last 6 months of the calendar can also be advantageous. It will permit you to push wages payable into the next personal tax year.

Have you ever disclosed revenues associated with the blog? Rules of thumb vary, but I’ve oft heard that <100K in revenue isn't worth the incorporation route….

]]> By: FrugalTrader http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104827 FrugalTrader Tue, 08 Sep 2009 17:20:39 +0000 http://www.milliondollarjourney.com/?p=988#comment-104827 ethan, in theory, you could have your wife as a shareholder setup with dividend sprinkling in mind. However, you would have to double check with an accountant regarding the rules behind being a contractor within a corp. ethan, in theory, you could have your wife as a shareholder setup with dividend sprinkling in mind. However, you would have to double check with an accountant regarding the rules behind being a contractor within a corp.

]]> By: ethan http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104826 ethan Tue, 08 Sep 2009 17:18:16 +0000 http://www.milliondollarjourney.com/?p=988#comment-104826 Hi, interesting idea. Is there a way to set this up so that I can share my income with my spouse ? I work as an engineer and I am the sole income earner in the family, my wife takes care of the kids. I think I may be able to convince my employer to change my status to contractor, once I did that do you think I may be able to make my own corporation (providing my engineering expertise) to my current employer and then some how give dividends to my spouse so that we can effectively be income splitting ? Hi, interesting idea. Is there a way to set this up so that I can share my income with my spouse ? I work as an engineer and I am the sole income earner in the family, my wife takes care of the kids. I think I may be able to convince my employer to change my status to contractor, once I did that do you think I may be able to make my own corporation (providing my engineering expertise) to my current employer and then some how give dividends to my spouse so that we can effectively be income splitting ?

]]> By: Northern Alex http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104824 Northern Alex Tue, 08 Sep 2009 17:10:10 +0000 http://www.milliondollarjourney.com/?p=988#comment-104824 Congrats to this move, FT! I am interested to read more in the next weeks about your further steps and actions. So far I wasn't considering it, but my accountant mentioned it to me too.... Congrats to this move, FT! I am interested to read more in the next weeks about your further steps and actions. So far I wasn’t considering it, but my accountant mentioned it to me too….

]]> By: Four Pillars http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104813 Four Pillars Tue, 08 Sep 2009 16:45:30 +0000 http://www.milliondollarjourney.com/?p=988#comment-104813 I've looked into this but I don't feel it is a worthwhile move for me at this time. I'm in a high tax bracket but part of the business income gets paid to my wife (#1 employee!) who is a stay-at-home mom and therefore ends up paying low income taxes. I also have a lot of rrsp room so any income I take can be put into rrsps. Bottom line is I don't think incorporating will save me any money. Once my rrsp room is used up and when/if my wife goes back to work then it might make more sense. I’ve looked into this but I don’t feel it is a worthwhile move for me at this time.

I’m in a high tax bracket but part of the business income gets paid to my wife (#1 employee!) who is a stay-at-home mom and therefore ends up paying low income taxes. I also have a lot of rrsp room so any income I take can be put into rrsps.

Bottom line is I don’t think incorporating will save me any money. Once my rrsp room is used up and when/if my wife goes back to work then it might make more sense.

]]> By: The Financial Blogger http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104796 The Financial Blogger Tue, 08 Sep 2009 15:39:31 +0000 http://www.milliondollarjourney.com/?p=988#comment-104796 This is a great move! I have incorporated my websites last year and I am saving a lot of money! have you though of registering for GST? you can get checks from Gov since most of your income is tax free but your expenses may be subject to GST ;-) Canadian tax laws are made for corporations ;-D This is a great move!

I have incorporated my websites last year and I am saving a lot of money!

have you though of registering for GST? you can get checks from Gov since most of your income is tax free but your expenses may be subject to GST ;-)

Canadian tax laws are made for corporations ;-D

]]> By: Ms Save Money http://www.milliondollarjourney.com/setting-up-a-corporation.htm/comment-page-1#comment-104793 Ms Save Money Tue, 08 Sep 2009 15:23:04 +0000 http://www.milliondollarjourney.com/?p=988#comment-104793 Great article - I would eventually like to create my own company one day. Anyway, I think it would be nice to read about bringing a company public - anyone have experience with this? Great article – I would eventually like to create my own company one day.

Anyway, I think it would be nice to read about bringing a company public – anyone have experience with this?

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