Separation between you and your company Ownership can

Separation between you and your company Ownership can be you, other business partners, your spouse, adult kids, a family trust, other corporations Corporation pay its own federal and provincial taxes separate from you You are paid salary/bonuses & dividends

If draws due to inconsistent cash-flow, then need to either show self-employment income or dividends Don’t want it to be a series of loans and repayments Company then doesn’t pay employer CPP Shareholder loans/draws need to be zero at end of your fiscal year

At all levels of corporate income, there is deferral of taxes for income left in the company and invested since corp rates are less than personal rates But will pay high taxes on the investment income unless pay it out to shareholders Ultimately about 3% less taxes by paying dividends versus salary And salary attracts CPP, EHT

Tax deferral –i. e. no personal taxes yet But need to watch how big your investment assets get – 50% of assets for 2 year, 90% Income on investments taxed at high rates if not needed during business cycle Refundable taxes if pay out dividends ($1: $3 ratio)

Sole proprietorship – pay for work done Partners – + allocate partnership profits Shareholders – dividends (but not to minor children), duplicate capital gains exemption if sell shares (but need to pay them) Many considering everyone in a family trust for maximum discretion on allocations

Principal place of business; all costs (except mtg princ) x sqft/sqft or #rooms Consider market rates to charge incorp co Rental income on your personal tax return Lease with company If not princ. place, then regularly and continuously meet clients there and exclusive business use (court cases)

Need to register where >30 k last 4 quarters Start usually as annual filer and remitter Move to quarterly remitter or filer based on first year If have a refund always (e. g. US sales and Cdn costs), then want frequent filing CRA doesn’t like sending big refunds

How and where delivered If delivered electronically, servers outside Ontario and can’t download in Ontario, then no PST If can download in Ontario, then PST If delivered in other provinces, may have HST (BC based on if you do direct advertising) Complicated so check it out

If self-employed, write-off the business proportion of all your auto costs (s/t max $800/mo, 30 k cost) If corporation, then difference if company owned or leased (taxable benefit) versus personally owned or leased If personally owned or leased, can charge company. 50/km first 5, 000 and $. 44/km over and no taxable benefit or chg allowance (taxable income)

Health Spending Accounts only available to corporations You make a contract with your company to cover list of medical expenses and put a set monthly amount in separate bank account each month until employee submits the medical expenses and gets reimbursed Account is not considered part of company books

No maximum, but should do set monthly amount Unlike group premiums for self-employed where get to deduct $1, 500 for self, $1, 500 for spouse and $750 each dependent child from business income (not incl life, ltd) Need to establish for all employees Monthly amounts are deductible to co; not taxable benefit to employee

If incorporated, then company pays employer portion of CPP Self-employed pay both sides when file their personal tax returns – 9. 9% of 42, 100, max $3, 821 in 2006 If within 15 years of retirement, want to ensure that you are maximizing your CPP contributions Can receive as early as 60 (reduced); normal 65

SRED is Scientific Research and Experimental Development Only available to corporations Important cash incentive to software companies & manufacturers in Cda where contribute to tech advancement and where there was tech uncertainty Pays $ even if don’t pay any income tax Approved SRED can be collateral for bank loan

Can define a smaller group (you, your partners, but not general employees) to be covered Corporation - need employee relationship IPP’s useful to accumulate larger amts than RRSP’s, get company deduction, if around 50, steady corp. cash-flow, and have been running the corp. for a number of years Companies will calculate benefit and consult for free; set up costs coming down

If you make more money than you need or want to live on – yes, tax deferral at least If there is liability risk – yes, corporate veil If there are contracts which are not assignable If you have income splitting opportunities with spouse and/or children

How can you help them to minimize their taxes? Specify in employment contract that they need home office (e. g. technology workers) with internet connection, cellphone, and personal computer; car also Give them a T 2200 to write off these against their employment income

If they negotiate contracts, pay some of remuneration as commission and specify as such on T 4 slip Commissioned employees have more writeoffs than salaried – even their fees for income tax preparation If they part of their benefits, specify it covers the life and long term disability part

When you start a business, you may not incorporate, so you can write-off losses against your personal income…but if the business is going to continue, it usually makes sense to incorporate There are more opportunities for tax deferral, income splitting, estate planning, health care deductions, retirement planning, etc. So make sure you are getting all the possible advantages