Employee or Contractor? (Part 3 Continued)
July 15, 2019
Medical expenses
September 27, 2019
Should you incorporate your small business or not? (Part 1)
Nearly all business owners at some point come to consider this option.
Corporations are separate business structures that have certain protection under the law and important benefits. But they also have some disadvantages that need to be looked at too.
We will start with pluses first:
- Personal asset protection or Limited Liability
If you run your business as a sole proprietorship, you as an individual are liable for all debts of your business and your personal assets are at risk.
Incorporating allows you to conduct your business without worrying that you might lose your home, car, or personal savings because of a business liability.
However, shareholders who are directors of the corporation can be held legally liable for some debts of the corporation such as GST/HST and payroll taxes in certain circumstances.
- Deductible expenses
Corporations can deduct normal current business expenses, allowable capital costs, and other types of deductions, including salaries, before they allocate income to owners.
- Corporate Income Tax
For Canadian-controlled private corporations (CCPCs) claiming the small business deduction the net federal tax rate is 9% effective January 1, 2019 plus the provincial small business tax rate for Alberta is 2% in 2019.
- Additional credibility and name protection
If you added for example “Inc.” after your business name, vendors and partners frequently prefer to do business with an incorporated company.
- Perpetual existence
Corporations can continue to exist even if ownership or management changes.
Sole proprietorships and partnerships just end if an owner dies or leaves the business.
- Personal Income and Tax optimization
As the owner of your business, you now can decide when is the best time and the most efficient way to get income – as salary or dividend. If you do not need all the income your business is earning as you are in the high tax brackets, you may leave this money in the company, and take it when your tax position is better.
