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Procom contractor night
This document provides an overview of the advantages of incorporating a business from a contractor education seminar. It discusses the primary forms of business organization including sole proprietorships, partnerships, and corporations. The financial advantages of incorporation include tax deferral, income splitting, and accessing lower corporate tax rates. Non-financial advantages include liability protection and increasing marketability. The document provides tips for maximizing tax deductions and benefits of incorporation through strategic planning and expense allocation. It also covers considerations for personal service businesses and next steps clients can take.
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- 1. Procom – ContractorEducation Advantages of Incorporation Presented by:
- 2. AGENDA Who We Are •What We Do • Why We Do It • Why Contractors Choose Us Forms of Organization • Sole Proprietorship • Partnership • Incorporation Advantages of Incorporation • Financial Advantages • Non Financial Advantages • Comparison Maximizing Benefits of Incorporation • • • • • Don’t Leave Money on the Table Maximize Expenses Tools for Maximizing Expenses Income Splitting Accessing Money Left in the Corporation Personal Service Business • • • • Background Considerations Current Situation Protection Next Steps Presented by:
- 3. Good Advice isPriceless Get a good accountant • That educates you • That asks questions • That you understand • That works with small business Ask for a referral Presented by:
- 4. Who We Are Specializingin Independent Contractors Since 1984 Offices across Canada ISO 9001 Registered Chartered Accountants for Information Technologists Presented by:
- 5. What We Do Proactivestrategic planning Financial Quarterbacking Business coaching & management training Financial planning Presented by:
- 6. Why We DoIt To work with creative and fun people To be a part of something exciting To be creative To minimize the pain of taxes To help entrepreneurs succeed Presented by:
- 7. Why Contractors ChooseUs? • We review pros & cons of each individual’s case to ascertain that, in fact, incorporation is for you. Free initial consultation Presented by: Turnkey • in house paralegal firm to incorporate contractor - 48 hour turnaround • we provide each client with a graphical benchmarking analysis comparing their results to the average Benchmarking Audit Protection • CA4IT will handle all negotiationsup to the end of the appeal stage without further charge
- 8. Three Primary Formsof Organization Cost to set up Expense deductibility Separate Legal Entity? Separate Tax Return? Financial Statements? Fiscal Year End? Sheltered Liability? CPP / Employ. Ins. Tax Deferral? Dividends Presented by: PROP. Low Yes No No No Dec 31st No Both No No PARTNER Low Yes No No No Dec 31st No CPP No No CORP. Moderate Yes Yes Yes (2) Yes Any Date Yes (*) CPP Yes Yes
- 9. Sole Proprietorship Cons • Unlimitedliability • Must pay Employment Insurance (EI) • Income is subject to the personal tax rate • Income is taxed even if not taken out of business • Must have Dec 31 year-end Presented by: • Eligible to deduct expenses • Income splitting with spouse • Inexpensive to set up - no need to register a company name Pros
- 10. Partnership Cons • Unlimited liability •Either partner can bind the other • Income is subject to the personal tax rates of partners • Income is taxed even if it is not taken out of business • Must have Dec 31 year-end Presented by: • Inexpensive to set up - must register business name with partner • Eligible to deduct expenses • Income splitting with spouse • No EI premiums Pros
- 11. Incorporation Cons • Initially morecostly to set up and maintain, however long term the benefits the company accrues will far outweigh this initial outlay. Presented by: • Leave money in the corporation and pay only 15.5% tax-in Ontario • Limited liability • No EI premiums • Income splitting • Long term savings plan • Broadens your ability to get contracts Pros
- 12. Financial Advantages ofIncorporation Small Business deduction Income Splitting Tax Free Loans Dividends Smooth Income Increased Rent & Automobile Expenses Presented by:
- 13. Non-Financial Advantages ofInc. Protect Personal Assets Presented by: Increase Your Marketability
- 14. Financial Comparison Sole Proprietor Corporation 150K 150K 40K 30K 80K Spouse Effective taxrate = 12% Contractor Effective tax rate = 22.6 % 3612.81 Expenses = $18,090 40K Expenses 30K 43K Spouse Effective tax rate = 12% Contractor Effective tax rate = 14.5 % =$3,612 =$6,224. Total Corporate Total Personal Tax: Presented by: $21,702 & Personal Tax: $15,571 37K Corporate Tax: 37K at 15.5% =$5,735
- 15. Maximizing the Benefitsof a Corp Be proactive The more you take the more you pay Do some tax planning Presented by:
- 16. Don’t Leave Moneyon the Table Lack of knowledge. Poor record keeping. Fear of Revenue Canada. Presented by: Decreased Expenses Increased Taxes.
- 17. Maximizing Expenses If theitems are not specifically disallowed and they were incurred with the intent to earn income in the future, the expense is deductible This is exceptionally vague (as most of the act is) and offers a lot of room for interpretation Presented by:
- 18. Tools for MaximizingExpenses Online • bookkeeping tool Reduce Time Benchmarking • tool Audit representation protection Presented by: Reduce Taxes • Reduce Risk
- 19. Advertising Vs. BusinessPromotion 50% of the total spent on meals and entertainment Rather have customer social events – they’re fully deductible Presented by:
- 20. You can applylosses made in a business against other income earned When going out for business lunches, dinners, breakfasts write the clients name on the credit card slip Keep a diary so you don’t have to remember what the expense was related to 20 Presented by:
- 21. Advertising Expenses You cangive your employees 2 non-cash gifts per year, tax free for special occasions such as Christmas, Hanukkah, birthdays, marriages etc. Presented by:
- 22. Motor Vehicle Expenses •Automobile expenses can be calculated using actual expenses or a mileage rate. • Automobiles should be purchased/leased under your personal name and the business can reimburse you for its use of the vehicle. Presented by:
- 23. Home Office Expenses Inorder to calculate the amount you can deduct from your tax return you will need to determine the business % of use • Rent or Mortgage interest • Insurance • Utilities • Property taxes • Maintenance fees Presented by:
- 24. Books & Periodicals • • • • Newspapers Magazines Subscriptions Anythingyou read! Presented by:
- 25. Education & Seminars Ifyou can deduct an expense on your personal tax return it is better to claim it personally and exclude it from your corporate tax return Presented by:
- 26. Telephone and Internet • • • • • Presentedby: Cell Phone Internet Long distance Secondary lines You cannot deduct your primary home telephone line
- 27. Insurance 3 Typesfrom a tax perspective Health, Dental E & O Disability Life Premiums are deductible as an expense if: Get expert advice Presented by: You are incorporated and it’s your primary source of income You offer coverage to all your permanent full time employees
- 28. Capital Cost Allowance(CCA) •You’re allowed you to claim CCA on all business assets • Ask your accountant what the rates are as they change regularly • Assets that cost less than $200 can be expensed • Ensure that you keep an accurate list of all the assets Presented by:
- 29. Large Assets When makinga large asset purchase consult with your accountant. Timing is important Presented by:
- 30. Split Income toSave Taxes Presented by:
- 31. Tax avoidance/planning islegal – using legitimate ways to reduce tax Incorporating to save taxes Income tax splitting Presented by:
- 32. Evasion of taxis breaking the law, falsifying accounting or not declaring income Presented by:
- 33. Income Splitting 1 personearns $100,000 Tax Payable = $32,825 2 people earn $50,000 each Tax Payable = $13767 each Total Payable = $27,434 Savings $5,391 Presented by:
- 34. Accessing Money Leftin Your Corp Presented by:
- 35. What is PersonalService Business (PSB) Subsection 125(7) of the Income Tax Act offers this definition of "personal services business": "Personal services business" carried on by a Corporation in a taxation year means a business of providing services where a) an individual who performs services on behalf of the Corporation (in this definition and paragraph 18(1) (p) referred to as an incorporated employee), or b) any person related to the incorporated employee is a specified shareholder of the Corporation and the incorporated employee would reasonably be regarded as an officer or employee of the person or partnership to whom or to which the services were provided but for the existence of the corporation. (Emphasis added.) Presented by:
- 36.
- 37. PSB Considerations Act likea business & be treated like one! Presented by: Contractor conduct
- 38. Current Situation –CRA PSB Project Presented by:
- 39. CA4IT PSB Protection UniqueAudit Protection Proprietary 76 page response to CRA PSB attacks Sample response to the CRA Questionnaire Presented by:
- 40.
- 41. Exclusive Offer forProcom Candidates Our Paralegal Services Include: • • • • • Articles of Incorporation for government approval HST/Business Number Registration Initial Return / Form 1 Corporate Bylaws Preparing: • • • • • Minutes of the organizational director’s meetings* Minutes of 1st shareholders’ meeting* Subscription for shares* The officer and directors’ registers* Share certificates* Our Fee: $495.00 (Plus HST) Other Services Included: Government Filing Fee Included Name Search Fee Included Corporate Minute Book & Corporate Seal Included Presented by:
- 42. Exclusive Offer forProcom Candidates Presented by:
- 43. Follow up Our firmhas been dealing with incorporated professionals like you since 1984, no one knows this business better than us…and we are assertive in our tax policies… we are very good at what we do and we have served 1000’s of clients! Phone: 1-800-465-7532 Email: CustomerService@CA4IT.com Presented by: