The answer to the question of incorporation is, “it depends”. First, you should consider these questions...
6 things to consider before making the decision to incorporate
- Are you planning on spending all of the income that you make?
- Why do you want to incorporate? Is it required for a specific purpose?
- How much taxable income do you currently generate?
- Do you have assets that you require personally or in the corporation?
- What current contracts do you have in your personal name?
- Do you know what tax deferral means? (Notice the words “tax avoidance” are not used here.)
There are several issues to consider when wanting to incorporate and, believe it or not, not all of them are tax-related. Legal liability is an important concept to consider and is something that your lawyer needs to discuss with you. Your accountant is not a lawyer and should not be giving you legal advice.
Once you’ve decided that incorporating is what you want, there could be other factors to consider.
7 factors to consider once you've decided to incorporate
- Provincial Sales Tax could be an issue depending on where you live.
- Administrative costs are higher with corporations - discuss these annual fees with your lawyer and accountant.
- Banking fees and interest rates may or may not be more favourable - have the conversation with your banker.
- The effect on you if you move a personal asset to a corporately owned asset - contact your insurance broker.
- A corporation is a separate entity and the only way to pull money out of this entity almost always requires you, the shareholder, to pay personal tax.
- Bookkeeping - you have to know how to separate personal from corporate transactions.
- Corresponding with the CRA in a whole new and exciting way with many new rules to follow.
Corporations are an excellent method of tax deferral. Not sure if you should incorporate? Have a discussion with your lawyer and accountant. Investing in getting wise and prudent advice before plunging ahead will save you in the long run.