Comments on: Should I Incorporate my Small Business? http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm Building Wealth through Saving and Investing Fri, 19 Mar 2010 19:36:23 -0400 http://wordpress.org/?v=abc hourly 1 By: carl http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-105715 carl Sat, 03 Oct 2009 12:24:27 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-105715 How about the removal of funds at the max 35000 per year as a tax strategy. Isn't it true that this gives you a way of removing dollars later from the corp and minimizing the personal tax hit ? How about the removal of funds at the max 35000 per year as a tax strategy. Isn’t it true that this gives you a way of removing dollars later from the corp and minimizing the personal tax hit ?

]]> By: MikeG http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-104819 MikeG Tue, 08 Sep 2009 16:54:20 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-104819 Just adding some newer information to the article, you can now have a one time exemption of 750,000. So sell your business for 1.5 million if you plan to do this kind of thing. http://www4.agr.gc.ca/AAFC-AAC/display-afficher.do?id=1204207744229&lang=eng I personally say, just never sell, make that money till the end of time. Just adding some newer information to the article, you can now have a one time exemption of 750,000. So sell your business for 1.5 million if you plan to do this kind of thing. http://www4.agr.gc.ca/AAFC-AAC/display-afficher.do?id=1204207744229&lang=eng

I personally say, just never sell, make that money till the end of time.

]]> By: Setting up a Corporation | Million Dollar Journey http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-104750 Setting up a Corporation | Million Dollar Journey Tue, 08 Sep 2009 10:30:45 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-104750 [...] my online business under a corporation. As it’s been mentioned before, incorporating has many advantages for a small business such [...]

[...] my online business under a corporation. As it’s been mentioned before, incorporating has many advantages for a small business such [...]

]]> By: Some Ideas For Stabilizing Your Income If You’re a Freelancer or Self-Employed | MoneyEnergy http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-82171 Some Ideas For Stabilizing Your Income If You’re a Freelancer or Self-Employed | MoneyEnergy Mon, 11 May 2009 19:29:13 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-82171 [...] make this even more difficult.  A somewhat related issue for (Canadian) small business owners is whether you should incorporate or not, since unexpected expenses can also involve such pleasantries as lawsuits and extra taxes, [...]

[...] make this even more difficult.  A somewhat related issue for (Canadian) small business owners is whether you should incorporate or not, since unexpected expenses can also involve such pleasantries as lawsuits and extra taxes, [...]

]]> By: Colourful Money http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-80043 Colourful Money Wed, 29 Apr 2009 07:01:54 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-80043 One thing I will say is not to register for a GST unless you're making the numerical threshold (the number escapes me now). It will save you a lot of headache, believe me, so much unnecessary paperwork and not worth the time! One thing I will say is not to register for a GST unless you’re making the numerical threshold (the number escapes me now). It will save you a lot of headache, believe me, so much unnecessary paperwork and not worth the time!

]]> By: FrugalTrader http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-54124 FrugalTrader Sat, 27 Sep 2008 22:55:17 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-54124 Louise, corporations will provide liability protection for your seniors day care business, which is the biggest reason why I would incorporate in that circumstance. Louise, corporations will provide liability protection for your seniors day care business, which is the biggest reason why I would incorporate in that circumstance.

]]> By: Louise http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-54105 Louise Sat, 27 Sep 2008 19:47:06 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-54105 We are in the process of setting up an senior day care center and are going back and forth about incorporating or just staying general partnership. We were wondering if we could register as a general partnership for now and as the business grows and becomes successful then incorporate. We are in the process of setting up an senior day care center and are going back and forth about incorporating or just staying general partnership. We were wondering if we could register as a general partnership for now and as the business grows and becomes successful then incorporate.

]]> By: dwu http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-48676 dwu Mon, 18 Aug 2008 16:46:33 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-48676 Can anyone please comment on what is the "mechanics" for issuing common shares once a CCPC is established? Is there a generic form to be completed or do we keep track of this using our minute book? Also my second question is that I setup a corporation on my own to trade Forex and equity options. I understand that all my gains will be taxed as business income in this case? thanks Can anyone please comment on what is the “mechanics” for issuing common shares once a CCPC is established? Is there a generic form to be completed or do we keep track of this using our minute book? Also my second question is that I setup a corporation on my own to trade Forex and equity options. I understand that all my gains will be taxed as business income in this case?

thanks

]]> By: Private Canadian Corporations and Taxes - The Basics | Million Dollar Journey http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-48635 Private Canadian Corporations and Taxes - The Basics | Million Dollar Journey Mon, 18 Aug 2008 10:31:12 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-48635 [...] The above benefits are explained in detail in the post about whether or not you should incorporate your business. [...]

[...] The above benefits are explained in detail in the post about whether or not you should incorporate your business. [...]

]]> By: Incorporation Gyan http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-36655 Incorporation Gyan Fri, 23 May 2008 18:03:15 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-36655 Incorporating a business have both advantages and disadvantages. Advantages comes as liability protection and corporation life does not cease. Also capital can be raised through sale of stock. Disadvantage is that double taxation and need of professional assistance in taxation and legal matters. Incorporating a business have both advantages and disadvantages. Advantages comes as liability protection and corporation life does not cease. Also capital can be raised through sale of stock. Disadvantage is that double taxation and need of professional assistance in taxation and legal matters.

]]> By: Ed Rempel http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5908 Ed Rempel Sat, 09 Jun 2007 03:18:56 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5908 Hi FT, This is a legal question, not a financial planning question. The general answer is that if you operate so that your customers or clients realize they are clearly working with your company, then you are probably protected. But if they can argue they were dealing with you personally or that you personally damaged them in some way, then there is still some risk. There are no guarantees in law. If your business is the type that litigation against you is somewhat likely, then it is adviseable to incorporate and to also protect your assets by putting them into a holding company or spouse's name, or by investing in seg funds (this is the one time seg funds may be worthwhile) or keeping assets fully leveraged. If you have no significant assets that can reasonably be seized, then you are also much less likely to follow through suing you. Ed Hi FT,

This is a legal question, not a financial planning question. The general answer is that if you operate so that your customers or clients realize they are clearly working with your company, then you are probably protected.

But if they can argue they were dealing with you personally or that you personally damaged them in some way, then there is still some risk. There are no guarantees in law.

If your business is the type that litigation against you is somewhat likely, then it is adviseable to incorporate and to also protect your assets by putting them into a holding company or spouse’s name, or by investing in seg funds (this is the one time seg funds may be worthwhile) or keeping assets fully leveraged.

If you have no significant assets that can reasonably be seized, then you are also much less likely to follow through suing you.

Ed

]]> By: FrugalTrader http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5897 FrugalTrader Sat, 09 Jun 2007 00:47:10 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5897 <b>Ed</b>, i've read that if you're the only "employee" of the corporation, and the corporation is sued, you can be personally liable. Any truth to this? Ed, i’ve read that if you’re the only “employee” of the corporation, and the corporation is sued, you can be personally liable. Any truth to this?

]]> By: Ed Rempel http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5896 Ed Rempel Sat, 09 Jun 2007 00:03:29 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5896 Hi Qubikal, That's an involved question. However, you can invest normally with tax-efficient investments inside your corporation. You will pay similar tax on future investment profits compared to if you had held same investments personally, but you will have more to invest, since you paid less tax on the original business income. If your investments are tax-efficient, then you can still defer future tax as well. Depending on the likelihood that your business would be sued or sold, you may be better off transferring your cash to a holding company before investing. This can essentially be done tax-free in most cases. The other option is to focus on strategies to get the cash out of your corporation with a minimum of tax. For example, you can use personal leverage strategies and take extra cash out of the company to pay the interest on the leverage loan. Ed Hi Qubikal,

That’s an involved question. However, you can invest normally with tax-efficient investments inside your corporation. You will pay similar tax on future investment profits compared to if you had held same investments personally, but you will have more to invest, since you paid less tax on the original business income.

If your investments are tax-efficient, then you can still defer future tax as well.

Depending on the likelihood that your business would be sued or sold, you may be better off transferring your cash to a holding company before investing. This can essentially be done tax-free in most cases.

The other option is to focus on strategies to get the cash out of your corporation with a minimum of tax. For example, you can use personal leverage strategies and take extra cash out of the company to pay the interest on the leverage loan.

Ed

]]> By: qubikal http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5346 qubikal Sun, 27 May 2007 16:10:08 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5346 Ed - thanks for clearing a few points up. What I'd like to know is what is the best way to grow my money if it is left "tax deferred" within the corporation? (other than looking at entrepreneurial opportunities?) Ed – thanks for clearing a few points up.

What I’d like to know is what is the best way to grow my money if it is left “tax deferred” within the corporation? (other than looking at entrepreneurial opportunities?)

]]> By: Ed Rempel http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5315 Ed Rempel Sun, 27 May 2007 01:23:40 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5315 Hi Qubikal, If you are thinking of investing in your corporation, you may be misunderstanding this. The low tax rate in your corporation comes from the "small business deduction" which applies to the first $400,000 of active business income in your corporation, but not to investment income in the corporation. Investment income in the corporation is taxed at a high rate similar to receiving the same income at the highest personal tax rate. There is no advantage of receiving investment income in the corporation. The advantage is that once you get into higher personal tax rates, you will pay less with corporation tax, which leaves you more money to invest. You will pay the extra tax eventually when you withdraw from your corporation. This tax is only deferred, but you can make money investing the savings in the mean time. Dividends from your corporation will be taxed favorably on your personal return, just like they were paid from a public company. However, this means your corporation won't get a deduction for paying the profits to you. The total tax is similar whether you pay it to yourself as a salary or a dividend. There are advantages of paying yourself a salary, especially that you get RRSP contribution room. Since the first $37,0000 of personal income is at a similar or lower tax rate than the small corporation rate, usually the most effective solution is to pay yourself a salary of $37,000 plus any other tax deductions you have (like RRSP), and then keep the remaining profits in the company (unless you need the cash flow to cover your personal expenses). Ed Hi Qubikal,

If you are thinking of investing in your corporation, you may be misunderstanding this. The low tax rate in your corporation comes from the “small business deduction” which applies to the first $400,000 of active business income in your corporation, but not to investment income in the corporation. Investment income in the corporation is taxed at a high rate similar to receiving the same income at the highest personal tax rate.

There is no advantage of receiving investment income in the corporation. The advantage is that once you get into higher personal tax rates, you will pay less with corporation tax, which leaves you more money to invest. You will pay the extra tax eventually when you withdraw from your corporation. This tax is only deferred, but you can make money investing the savings in the mean time.

Dividends from your corporation will be taxed favorably on your personal return, just like they were paid from a public company. However, this means your corporation won’t get a deduction for paying the profits to you. The total tax is similar whether you pay it to yourself as a salary or a dividend.

There are advantages of paying yourself a salary, especially that you get RRSP contribution room. Since the first $37,0000 of personal income is at a similar or lower tax rate than the small corporation rate, usually the most effective solution is to pay yourself a salary of $37,000 plus any other tax deductions you have (like RRSP), and then keep the remaining profits in the company (unless you need the cash flow to cover your personal expenses).

Ed

]]> By: Ed Rempel http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5309 Ed Rempel Sat, 26 May 2007 20:57:46 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5309 FJ - A basic personal return may be $80-120 at H&R Block and possibly $20-40 more to add the schedule for a sole proprietorship into your personal return. A corporate return will probably cost $250-800. The other cost is that banks will generally charge you $10/month or more higher for a corporation account vs. a personal account. In total, you should expect it to cost $400-1,000/year more to maintain your corporation. It will probably cost you $400-1,200 to setup the corporation. For these reasons, you are usually best to stick with a sole proprietorship unless you have a specific reason, such as the 3 in the article, to make it worthwhile to have a corporation. FJ – A basic personal return may be $80-120 at H&R Block and possibly $20-40 more to add the schedule for a sole proprietorship into your personal return. A corporate return will probably cost $250-800. The other cost is that banks will generally charge you $10/month or more higher for a corporation account vs. a personal account.

In total, you should expect it to cost $400-1,000/year more to maintain your corporation. It will probably cost you $400-1,200 to setup the corporation. For these reasons, you are usually best to stick with a sole proprietorship unless you have a specific reason, such as the 3 in the article, to make it worthwhile to have a corporation.

]]> By: Qubikal http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5266 Qubikal Fri, 25 May 2007 16:40:49 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5266 FT - Thanks for posting the topic. The article (and all comments) are very informational for my current situation. ThickenMyWallet - Great points on using the Corporation as an investing vehicle (in addition to the regular course of business. Could you provide further information about paying dividends via CCPC being treated the same as public co dividends? And will this apply to other provinces - ie. BC? FT – Thanks for posting the topic. The article (and all comments) are very informational for my current situation.

ThickenMyWallet – Great points on using the Corporation as an investing vehicle (in addition to the regular course of business.

Could you provide further information about paying dividends via CCPC being treated the same as public co dividends? And will this apply to other provinces – ie. BC?

]]> By: ThickenMyWallet http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5243 ThickenMyWallet Fri, 25 May 2007 03:27:42 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5243 FJ- generally speaking, one half of the taxable capital gain (less one half of any applicable capital loss) is included into the corporation's income and taxed at the corporation's regular rate. However, as a general rule, if the corporation is deriving more than 10% of its income from passive income sources (i.e. it does nothing more than hold stocks and bonds), the corporation will be taxed at the passive income rate of 49.79% and the CCPC federal tax rate of 13.12% no longer applies. FJ- generally speaking, one half of the taxable capital gain (less one half of any applicable capital loss) is included into the corporation’s income and taxed at the corporation’s regular rate. However, as a general rule, if the corporation is deriving more than 10% of its income from passive income sources (i.e. it does nothing more than hold stocks and bonds), the corporation will be taxed at the passive income rate of 49.79% and the CCPC federal tax rate of 13.12% no longer applies.

]]> By: FrugalTrader http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5241 FrugalTrader Fri, 25 May 2007 02:25:04 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5241 FourPillars: LOL, no, not yet. ;) Guys, I apologize for the lack of involvement in the comments/emails, i'm currently in the states on business. FourPillars: LOL, no, not yet. ;)

Guys, I apologize for the lack of involvement in the comments/emails, i’m currently in the states on business.

]]> By: The Financial Blogger http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm/comment-page-1#comment-5240 The Financial Blogger Fri, 25 May 2007 01:41:22 +0000 http://www.milliondollarjourney.com/should-i-incorporate-my-small-business.htm#comment-5240 FJ, for your 1st question, I'm not quite sure about the answer (I remember reading it while during my CFP but it's all blank now;-). However, for question#2 personal report cost between $30 to $100 depending on the complexity of your personal stuff (rrsp, stock trading, dividend, dependent, etc). For sole proprietorship and company it's the same. One of my relative pays about $1000 for everything in regards to a corporation. On my side, I pay about $400 for myself, my wife and my sole proprietorship. In both cases, it's not that expensive considering having your tax done properly! FJ, for your 1st question, I’m not quite sure about the answer (I remember reading it while during my CFP but it’s all blank now;-). However, for question#2 personal report cost between $30 to $100 depending on the complexity of your personal stuff (rrsp, stock trading, dividend, dependent, etc). For sole proprietorship and company it’s the same. One of my relative pays about $1000 for everything in regards to a corporation. On my side, I pay about $400 for myself, my wife and my sole proprietorship. In both cases, it’s not that expensive considering having your tax done properly!

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