Well the short answer is you don’t need to but it’s in your benefit to do so. In Canada the government wants entrepreneurs to start new companies which generates new jobs and stimulates the economy. If the government stimulates the economy in a positive manner then what do you know you have the same government next election #Liberals. So the government provides tax incentives by offering a special tax deduction called the “Small business deduction”. This deduction in one word is Awesome.
Basically on your first $500,000 of income you make within your business you are going to pay a far less taxable liability compared to if you made the same income under employment taxes. On average a Corporation is taxed much lower and a good rule of thumb is 15%. A average employee would be taxed in the 35-40% bracket. Simply by incorporating and keeping the profits inside the company and only giving yourself a salary/dividend on what cash requirements you personally have will help you in your personal taxes because of the basic salary tax deduction offsetting your income. You can always implement a dividend sprinkling strategy more on this later. #WinWin
Apart from the tax savings there’s a security and peace of mind element to incorporations. In the unfortunate circumstance that you are sued under most circumstances your liability to the corporation is limited to the assets within the corporation. Since you are an employee/shareholder your personal assets are not impacted so you won’t lose your house/car.
Additionally since you have an incorporation you can take your papers to the bank and open a Business Bank account and a Business credit card. When you borrow money under your business it doesn’t show up under your personal liability which in short is a win/win situation for you. Since you legally own the name/company you can have a level of ownership and build your space in the market where no one else can do business using your name. You can now effectively start to brand and build your profile online. #Marketing101
So going back to the original question do you really need to get your business incorporated? Reading the above makes you wonder why wouldn’t you? The costs of sustaining a corporation are offset by the great savings and value of having one. #MakeItOffical
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- Written by: Jag Bath