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Question about incorporating vs staying as Sole for Contract IT Roles

  • Last Updated:
  • Apr 17th, 2019 6:48 am
[OP]
Deal Guru
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Dec 23, 2003
13347 posts
1953 upvotes
Toronto

Question about incorporating vs staying as Sole for Contract IT Roles

I got laid off from my current full-time job and am considering taking contract roles. I did notice that Inc. people can command a higher rate and wanted to know your feedback if it is worthwhile getting incorporated for a 1 person company in an IT role. The annual salary would be around $100K to $120K

Thanks
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12 replies
Deal Guru
Jan 27, 2006
11302 posts
4611 upvotes
Vancouver, BC
Sorry to hear about your layoff - hopefully, you got a good package.

When I was thinking about the same, various agencies told me that the higher rate is because there's less work for the agency being the middle man - ie company pays them, they pay you like an employee so they will have to hold back the various things like holiday/vacation pay. If you speak to those recruiters, none of those agencies want to do that work would rather run as a pass through. The extra work cost those agency resources so they charge you for it. I don't believe the agency makes any extra off of you as if they did, they wouldn't want you to be incorporated.

As far as what's it worth to incorporate, a few agencies told me that for any position getting more than $50,000 per year, it's in the contractors best interest to incorporate. Of course, that would mean understanding the additional requirements and such but most agencies are more than willing to provide you with a cheat sheet to do that. One thing I did find was some agencies were bare bones - ie pointed you in the right direction for things like insurance and the like, while others may provide you with some resources if you get the contract (ie. insurance provided).
Member
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Apr 28, 2011
251 posts
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I was in the exact same situation as you. Had I not incorporated, the agency would have taken a cut of the hourly rate. If you're willing to do the extra work for incorporating then it's definitely worth it (assuming a higher pay rate).
Banned
Jul 1, 2017
239 posts
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hightech wrote:
Feb 9th, 2019 5:45 pm
Yes, there are tax advantages, but the big concern I have is getting classified as a Personal Service Business by the CRA. If that happens, you get royally screwed.
No, that's not correct at all. The advisement I've given all my friends whom have the ability to incorporate and contract their services is to do it so long as the income is stable.

It costs nothing to incorporate yourself and, in the IT world, you have a lot of opportunities as more small organizations (<$10mm revenue) are outsourcing their IT these days than ever before. I run Finance and IT for my company; shoot me a PM and I can give you some good advisement.
Deal Fanatic
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Mar 23, 2008
9740 posts
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Edmonton
I’ve gone from being an employed software developer to an employee consultant to independent contractor. PM me if you want more info.

The money is considerably better, like > 50%. In September, i interviewed at a number of companies when my contract was coming up for renewal, so I have a pretty good idea what my value is as both a contractor and employee.

The drawback is you’re the only one who’s really concerned about your wallet or career. No paid time off, no benefits, etc. No mentors helping you pick a path through your current company.

Anyway, I’ve been doing the contract work for about the last 8 years, and only incorporated last year. Give me a shout if you have questions.

C
Deal Guru
Jan 27, 2006
11302 posts
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Vancouver, BC
hightech wrote:
Feb 9th, 2019 5:45 pm
Yes, there are tax advantages, but the big concern I have is getting classified as a Personal Service Business by the CRA. If that happens, you get royally screwed.
From what I've read on the subject about PSBs, you just need to be able to demonstrate that you are not just working for party 'X' but are open to work for party 'Y' and 'Z'. The CRA is just concerned about those companies that have full time employees on a long term basis but are using them as contractors. If you can demonstrate that you aren't a full time employee (ie apply for other contracts and hopefully win one or two), then you should be fine.
Newbie
Jan 6, 2018
31 posts
5 upvotes
craftsman wrote:
Feb 10th, 2019 2:53 pm
From what I've read on the subject about PSBs, you just need to be able to demonstrate that you are not just working for party 'X' but are open to work for party 'Y' and 'Z'. The CRA is just concerned about those companies that have full time employees on a long term basis but are using them as contractors. If you can demonstrate that you aren't a full time employee (ie apply for other contracts and hopefully win one or two), then you should be fine.
Pretty close...though there are a number of factors CRA considers. Even if CRA labels you a PSB, you are not "screwed". The PSB title is tax year specific, so in theory you only retain the PSB title certain years. In IT, people 'can' run into PSB issues when they act like a contract employee (even though the contract is crop to corp) for years on end under the same contract. One of the key factors they look at is the ability for you business to take a loss. If your business has no expenses, all equipment provided by your client, and no concrete deliverables (ie your contact is a form of staff augmentation), then in theory you are at a higher risk for being labelled as a PSB.

From what I was told, you need to show that you are open for multiple contracts (as crafsman mentioned) and that you can show that your business has a risk of taking a loss. Some agencies say you need to pay some form of error and omission insurance to prove this, but this isn't true (and in some cases, just away for the agency to get a referral fee from the insurance provider). Your one-man corporation may have marketing (and other) expenses to try and obtain new clients...these can alll show the CRA that your business is open for additional contracts.
Newbie
Apr 10, 2019
3 posts
These contract IT positions you guys are all mentioning, are they "staff augmentation" (ie $70 for 6 months) or fixed price contracts to build a app or website?
Deal Fanatic
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Mar 23, 2008
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Edmonton
jen2838 wrote:
Apr 11th, 2019 7:27 pm
These contract IT positions you guys are all mentioning, are they "staff augmentation" (ie $70 for 6 months) or fixed price contracts to build a app or website?
Almost all my contracts are in the “staff augmentation” category. I’ve done a couple of fixed price contracts for one client in particular, where I’m the only developer, as well as the BA, QA, and PM as well. Not a fan of that, as feature creep tends to bite you in the ass.

C
Penalty Box
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Jun 24, 2015
2584 posts
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Woodbridge, ON
you should be able to move out of the "contract" portion of your employment and secure permanent employment within 1-2 years otherwise your doing something wrong. if your that good at your job they would not want to keep you on the contract end of the spectrum unless they are a crap employer and in that case steer clear from these places. no one in their right mind wants to be self employed for 8-10 years, its a headache, you will have a hard time getting a mortgage if you decide to buy a house one day
Hi
Deal Addict
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Aug 15, 2015
1513 posts
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Markham, ON
What do IT people actually do nowadays? I find that whenever you buy new electronic now, the first thing they do when you turn the device on is shove a bunch of agreement in your face before you can even use what you purchased at the store.

No wonder everyone works at home. What happened to just plugging in that TV and easily being able to flip channel.

I don't even want to use any technology at home now because I have no control over anything.

I am sticking to my old technology, like the DVD, the CD, the book.
Deal Addict
Jan 31, 2007
2978 posts
492 upvotes
Inc is much better, only problem you need to pay close attention to your taxes. You can claim lots of business expense, etc.

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