Sole proprietor VS Incorporate

[BigD]

Originally Posted by KIRASIR

Basically if you are a sole proprietor and on a contract by a company from which you get a regular paycheck for the services rendered as well as work on-site using their equipment (99% of the IT contractors today), in the eyes of the CRA you will be considered an employee

JFYI, this is the same if you're incorporated. A bank I did a contract for is currently in talks with CRA to prove that the contractors don't count as full time employees, even though they were all incorporated and through agencies. Some were there for over 3 years. They would just give them new contracts with new job titles so no one had the same title for over a year... apparently the CRA called BS.

[Blackedout95]

Originally Posted by sirex
if you do it right, by incorporating you can pay your self dividends rather than a salary. which means you pay practically no tax on $80,000.

Originally Posted by ScotcH

Totally incorrect. The corp pays the tax. Dividend is payed out after tax. They amount to the almost the same thing in the end if you are the only employee.

Scott you are 110% WRONG, this option is the story of my life, I take a dividend on a 6 figure salary for several years now and the savings is HUGE. The ONLY down side is no CPP contribution which I have the discipline to invest my savings for the future much better. On $80k dividend a year with nominal write offs such a $$$$ charity cont. and other expenses you would pay very low $XXXX in tax.

The company pays roughly $10k, you $2k so $12k is much better than $20k+, no?

To say a dividend does not work out better defeats the whole opton of a dividend, it is created to save in taxation. It works out better because of my explination above. The corporate tax rate and dividend rate combined are lower than the personal take bracket rate at that level.

And just for fun one day I sat down with my accountant to discuss my cpp and if I were not to take a dividend and paid into the cpp instead I would have to live to be 98 years old just to get the money back. Soooo money now and invest or hope I live to 98 years old and cpp still even exists.

[sirex]

Originally Posted by Blackedout95

Originally Posted by sirex
if you do it right, by incorporating you can pay your self dividends rather than a salary. which means you pay practically no tax on $80,000.



Scott you are 110% WRONG, this option is the story of my life, I take a dividend on a 6 figure salary for several years now and the savings is HUGE. The ONLY down side is no CPP contribution which I have the discipline to invest my savings for the future much better. On $80k dividend a year with nominal write offs such a $$$$ charity cont. and other expenses you would pay very low $XXXX in tax.

The company pays roughly $10k, you $2k so $12k is much better than $20k+, no?

To say a dividend does not work out better defeats the whole opton of a dividend, it is created to save in taxation. It works out better because of my explination above. The corporate tax rate and dividend rate combined are lower than the personal take bracket rate at that level.

And just for fun one day I sat down with my accountant to discuss my cpp and if I were not to take a dividend and paid into the cpp instead I would have to live to be 98 years old just to get the money back. Soooo money now and invest or hope I live to 98 years old and cpp still even exists.

someone that knows what they are talking about.. thanks for backing me up. I didn't want to write out all the details.


e.g. if you pay your self a salary, the corp STILL PAYS TAXES lol. but your marginal rate at $80,000 is much higher than having a dividend of $80K

[Blackedout95]

Originally Posted by sirex

someone that knows what they are talking about.. thanks for backing me up. I didn't want to write out all the details.


e.g. if you pay your self a salary, the corp STILL PAYS TAXES lol. but your marginal rate at $80,000 is much higher than having a dividend of $80K

No doubt about it, if you can deal with the cpp factor, it is well worth it!

As a side bonus I do not have to open a payroll account and all that BS. It is not needed when taking a dividend.

[T.Dot_E30]

Originally Posted by Blackedout95

The ONLY down side is no CPP contribution which I have the discipline to invest my savings for the future much better. On $80k dividend a year with nominal write offs such a $$$$ charity cont. and other expenses you would pay very low $XXXX in tax.

To say a dividend does not work out better defeats the whole opton of a dividend, it is created to save in taxation. It works out better because of my explination above. The corporate tax rate and dividend rate combined are lower than the personal take bracket rate at that level.

Stop making up facts and aggregating the truth. CPP is still deducted from your personal income tax, assuming you are claiming the dividends as income otherwise your committing tax fraud. Dividends are after tax dollars from the corporation, meaning they are already taxed albeit at a lower corporate take rate, when you then add in that it is taxed again as your personal income, it starts to equal out.

I'm not saying there is no benefit, I'm saying it isn't as much as you are making it out to be. If the corporation is making lots of money then yes, if it's making pennies or an average salary, then not so much.

Read this from a more creditable source.

Our personal and corporate income tax structure is as fair as it has ever been. It is what accountants refer to as being “fully integrated”. This means that at the end of the day, whether you pay yourself a salary or a dividend, when you take the income taxes paid at the corporate level and those paid personally, the combined taxes should be the same whether you take all salary, all dividends, or a combination of the two. That being said, nothing in life is perfect and, in almost all cases, there is a discrepancy of one or two percentage points that can work for you or against you and potentially influence your decision on how you compensate yourself.

http://www.mnp.ca/en/media-centre/bl...-right-for-you

[Blackedout95]

Originally Posted by T.Dot_E30

Stop making up facts and aggregating the truth. CPP is still deducted from your personal income tax, assuming you are claiming the dividends as income otherwise your committing tax fraud. Dividends are after tax dollars from the corporation, meaning they are already taxed albeit at a lower corporate take rate, when you then add in that it is taxed again as your personal income, it starts to equal out.

I'm not saying there is no benefit, I'm saying it isn't as much as you are making it out to be. If the corporation is making lots of money then yes, if it's making pennies or an average salary, then not so much.

Read this from a more creditable source.



http://www.mnp.ca/en/media-centre/bl...-right-for-you

First off, I am not making anything up..

Secondly fraud, you are DEAD WRONG if you receive a dividend you do NOT contribute to CPP. There is no fraud in taking a dividend and not paying CPP, its their law! And taking a dividend and not claiming it, of course you claim it that is what we are debating (tax rates of dividends), wtf are you talking about.

And thirdly for the second time in just 3 posts the combination of corporate tax plus dividend tax rate is LOWER let me repeat slowly for you it is LOWER than just taking a salary and being taxed at the highest rate (bracket). There is no equal in the end BS or you tell me what the purpose of a dividend would be than?

I am amazed you quoted a site you didnt even read the first 2 paragraphs of fcp

And I QUOTE from YOUR link, a whole 7 sentences in...

Dividends are investment income – a return on your shares. As such, they are not subject to normal payroll deductions and charges such as CPP and EI premiums, provincial payroll/health taxes, workers’ compensation premiums, etc.

and just below that...

The Benefits

As an added benefit, in many provinces dividends from income taxed at the lowest corporate tax rate results in an all out tax savings of a couple percentage points. When combined with the avoidance of the CPP premiums, the savings can quickly add up, significantly influencing many people’s compensation decision.

Goodnight everyone, Ill be in town all week.

[sirex]

Originally Posted by T.Dot_E30

Stop making up facts and aggregating the truth. CPP is still deducted from your personal income tax, assuming you are claiming the dividends as income otherwise your committing tax fraud. Dividends are after tax dollars from the corporation, meaning they are already taxed albeit at a lower corporate take rate, when you then add in that it is taxed again as your personal income, it starts to equal out.

I'm not saying there is no benefit, I'm saying it isn't as much as you are making it out to be. If the corporation is making lots of money then yes, if it's making pennies or an average salary, then not so much.

Read this from a more creditable source.



http://www.mnp.ca/en/media-centre/bl...-right-for-you

Do you even know how dividend income is taxed?

And it's funny because your link proves you wrong.

[sirex]

Not to mention that your wife can also be paid dividends.

[dcramer]

Yes splitting income either dividend or salary is a benefit. Also if you have kids you can make them shareholders as well as pay them to do odd jobs

[JayWells]

Corporate by far. Way more benefits, and protected assets is a plus

[KIRASIR]

Originally Posted by JayWells

Corporate by far. Way more benefits, and protected assets is a plus

"protected assets" is somewhat of a myth. In certain cases an officer can still be held personally liable for corporate taxes and other financial debts.

[StikiGreenZ]

Lol so misinformed some people!