Advantages of Incorporation

1. Procom – Contractor Education
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 is Priceless
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
Specializing in
Independent
Contractors
Since 1984
Offices across
Canada
ISO 9001
Registered
Chartered
Accountants
for Information
Technologists
Presented by:

5. What We Do
Proactive strategic planning
Financial Quarterbacking
Business coaching & management training
Financial planning
Presented by:

6. Why We Do It
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 Choose Us?
• 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 Forms of 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
• Unlimited liability
• 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 more costly 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 of Incorporation
Small Business deduction
Income Splitting
Tax Free Loans
Dividends
Smooth Income
Increased Rent & Automobile Expenses
Presented by:

13. Non-Financial Advantages of Inc.
Protect
Personal Assets
Presented by:
Increase Your
Marketability

14. Financial Comparison
Sole Proprietor
Corporation
150K
150K
40K
30K
80K
Spouse
Effective
tax rate
= 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 Benefits of a Corp
Be proactive
The more
you take the
more you pay
Do some tax
planning
Presented by:

16. Don’t Leave Money on the Table
Lack of
knowledge.
Poor record
keeping.
Fear of
Revenue
Canada.
Presented by:
Decreased Expenses
Increased Taxes.

17. Maximizing Expenses
If the items 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 Maximizing Expenses
Online •
bookkeeping tool
Reduce Time
Benchmarking •
tool
Audit
representation
protection
Presented by:
Reduce Taxes
•
Reduce Risk

19. Advertising Vs. Business Promotion
 50% of the total spent on
meals and entertainment
 Rather have customer
social events – they’re fully
deductible
Presented by:

20. You can apply losses 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 can give 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
In order 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
Anything you read!
Presented by:

25. Education & Seminars
If you 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
•
•
•
•
•
Presented by:
Cell Phone
Internet
Long distance
Secondary lines
You cannot deduct your
primary home telephone
line

27. Insurance
 3 Types from 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 making a large asset
purchase consult with your
accountant.
Timing is important
Presented by:

30. Split Income to Save Taxes
Presented by:

31. Tax avoidance/planning is legal –
using legitimate ways to reduce tax
Incorporating to save taxes
Income tax splitting
Presented by:

32. Evasion of tax is
breaking the law,
falsifying
accounting or not
declaring income
Presented by:

33. Income Splitting
1 person earns $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 Left in Your Corp
Presented by:

35. What is Personal Service 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. Background of Legislation
Presented by:

37. PSB Considerations
Act like a business
& be treated like
one!
Presented by:
Contractor conduct

38. Current Situation – CRA PSB Project
Presented by:

39. CA4IT PSB Protection
Unique Audit
Protection
Proprietary 76
page response to
CRA PSB attacks
Sample response
to the CRA
Questionnaire
Presented by:

40. Next Steps
Presented by:

41. Exclusive Offer for Procom 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 for Procom Candidates
Presented by:

43. Follow up
Our firm has 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: