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Incorporating self as a contractor

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  • Jul 29th, 2018 10:31 am
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[OP]
Member
Oct 17, 2015
226 posts
34 upvotes
Toronto, ON

Incorporating self as a contractor

I am seeing lots of jobs insisting on person being incorporated.
Can someone please tell me if it is worthwhile to incorporate before starting an actual contact and what is required to incorporate in ON?
Many Thanks in advance.
9 replies
Newbie
Sep 11, 2017
64 posts
23 upvotes
Incorporating makes sense if you are earning beyond a certain threshold. Contract jobs look for people who already have a Corp or sole proprietor setup. Talk to a lawyer for advise on setting one up for you. Have a Corp will also mean more paperwork/costs spent on taxes...thus it only makes financial sense if your Corp is earning enough $ to warrant the extra burden/costs.
Deal Addict
Sep 23, 2007
4425 posts
777 upvotes
Setting up a corporation is incredibly easy. You can do it all online. If you are the only person involved, you don't need a lawyer/accountant to help.

Is it worthwhile? That's harder to answer. If you expect to have a lot of clients, then probably. Yes there will be some extra paperwork but I think it's manageable. In terms of financial costs, there are some new tax rules where you might be deemed a PSB (personal services business) where a lot of expenses are not deductible. Previously the main advantage is that you receive all this income in your corporation and you have some flexibility in how you can withdraw it, plus the ability to deduct certain expenses. The new PSB rules are kind of muddy so I'm not sure what's going on there...but it appears a lot of the previous tax advantages of being a contractor have been destroyed by that godawful tax bill.
[OP]
Member
Oct 17, 2015
226 posts
34 upvotes
Toronto, ON
BananaHunter wrote:
Jul 15th, 2018 1:06 am
Setting up a corporation is incredibly easy. You can do it all online. If you are the only person involved, you don't need a lawyer/accountant to help.

Is it worthwhile? That's harder to answer. If you expect to have a lot of clients, then probably. Yes there will be some extra paperwork but I think it's manageable. In terms of financial costs, there are some new tax rules where you might be deemed a PSB (personal services business) where a lot of expenses are not deductible. Previously the main advantage is that you receive all this income in your corporation and you have some flexibility in how you can withdraw it, plus the ability to deduct certain expenses. The new PSB rules are kind of muddy so I'm not sure what's going on there...but it appears a lot of the previous tax advantages of being a contractor have been destroyed by that godawful tax bill.
BananaHunter Thanks for replying. I am familiar with incorporating for a business. However I am not sure that most contractors incorporate as a business or sole proprietor.
Deal Addict
Oct 14, 2004
1307 posts
302 upvotes
Toronto
AdsJoint wrote:
Jul 16th, 2018 5:53 am
BananaHunter Thanks for replying. I am familiar with incorporating for a business. However I am not sure that most contractors incorporate as a business or sole proprietor.
Most agencies will want you to incorporate and will shy away from sole-proprietors.
Deal Fanatic
User avatar
Mar 23, 2008
7113 posts
4067 upvotes
Edmonton
AdsJoint wrote:
Jul 16th, 2018 5:53 am
BananaHunter Thanks for replying. I am familiar with incorporating for a business. However I am not sure that most contractors incorporate as a business or sole proprietor.
Speaking as someone who has been an IT contractor for the past 5 years...

As mentioned... Some companies don't like to deal with sole prop contractors.

Unfortunately, the government has removed a number of tax benefits of being incorporated for single employee corporations. So personally, I consider it as overhead as far as being a contractor goes, as opposed to a benefit.

C
[OP]
Member
Oct 17, 2015
226 posts
34 upvotes
Toronto, ON
James_TheVirus wrote:
Jul 16th, 2018 7:24 am
Most agencies will want you to incorporate and will shy away from sole-proprietors.
CNeufeld wrote:
Jul 16th, 2018 11:56 am
Speaking as someone who has been an IT contractor for the past 5 years...

As mentioned... Some companies don't like to deal with sole prop contractors.

Unfortunately, the government has removed a number of tax benefits of being incorporated for single employee corporations. So personally, I consider it as overhead as far as being a contractor goes, as opposed to a benefit.
C
Yes you are right, some head hunters I have spoken to recently have made it clear that they prefer incorporated contractors. Looks like full blown business incorporation is the way to go
Sr. Member
May 12, 2003
692 posts
162 upvotes
There are no benefits left for you to be a contractor.

If you are a contractor (through a corporation) and the corp is deemed to be a "PSB", then you're not allowed a small business deduction, and will be paying tax rate of 44.5% (unless you take the entire amount out as a salary.
Deal Fanatic
Nov 2, 2013
5246 posts
1114 upvotes
Edmonton, AB
A lot of people do it for the sake of tax benefits, namely:
- Income splitting/sprinkling; dividing income among the shareholders (e.g. family members) so each person is taxed at a lower marginal bracket.
- Tax deferral; the corporate tax rate (especially for small business) is low, so instead of having income taxed at your highest bracket the same year, some people like to leave cash in the corporation to further grow it as it is being taxed less.
- Shareholder loans. You can borrow money from your company and have it not be considered income for a year.
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