There are potential tax benefits to incorporation. As a company owner, you can pay yourself a salary or dividend. In any case, you must pay personal income tax on this, which is different from filing business tax—if the business is incorporated, its expenses, etc. they are no longer claimed on your personal income tax. Your company then deducts your salary as a business expense, reducing the amount of business tax you will pay. Business taxes are also low.
However, in Canada, due to the principle of tax consolidation, you will pay the same amount of tax, whether it is consolidated or not, if you withdraw all the profits at the end of the year. Therefore, the installation is only beneficial if you leave part of the profit within the company (for example, paying staff or investing in new equipment). This is why mergers are often beneficial for large companies.
Cost of installation in Canada
Integration has direct and hidden costs. You can register in your state or territory (if it’s the only place you do business) or you can register in the state (if you do business outside your province or territory). The state incorporation process is less complicated, and therefore less expensive, than government incorporation. Note that if you incorporate federally, you must still incorporate in the state or territory where you are based.
The federal fee you must cover is $200, and you can pay it online. Installation costs vary by state or territory. To register a company in Ontario, for example, the fee is $300, plus $60 to register the business name, which you must do before you can incorporate it.
However, there are other costs of integration, and these can be substantial. “I had to hire an accountant to help me file. There was a lot of government documentation involved and I found it difficult to clarify what the requirements and duties were,” said Guillot. “It got expensive very quickly.”
It also takes a lot of time to figure out how the integration process works and make sure you meet all the requirements. You have to create a board of directors, get your company name approved and define a share structure, for example. “It’s not something you can do in the afternoon!” Guillot said.
If you want support throughout the process, an accountant or lawyer can help, or you can hire a company that specializes in helping businesses incorporate, such as Ownr (an RBC Ventures company) or Incorp Pro. They offer a menu of services, starting at a few hundred dollars.
Running an incorporated business is also more complicated than a sole proprietorship.
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