Entrepreneurship & Small Business

Should I incorporate or go with sole proprietorship?

  • Last Updated:
  • Jun 9th, 2018 9:51 am
Deal Guru
Aug 2, 2010
13204 posts
3416 upvotes
Here 'n There
Poppwl wrote:
Jun 4th, 2018 2:44 pm
When I read these stuff on redflag, I just feel like, you are only right until the tax man come knocking. It's luck of the draw.
Hardly. Stick to the rules and you'll be ok.
[OP]
Newbie
Feb 24, 2011
51 posts
5 upvotes
Edmonton
Lots of responses here thanks. I think the tax savings/deferral would benefit me in my specific situation I don't really need to take out any $ from the business I could let it grow/reinvest. My next step will be to search out a decent accountant to incorporate. Just want to play by the rules running afoul of CRA sounds like a nightmare I really don't want to experience.
Sr. Member
Jan 1, 2009
980 posts
298 upvotes
Vancouver
Jake1982 wrote:
Jun 4th, 2018 4:05 pm
Lots of responses here thanks. I think the tax savings/deferral would benefit me in my specific situation I don't really need to take out any $ from the business I could let it grow/reinvest. My next step will be to search out a decent accountant to incorporate. Just want to play by the rules running afoul of CRA sounds like a nightmare I really don't want to experience.
Accountants do not assist in incorporating your business. That is not their job and a breach of their ethics. Seek a business lawyer to incorporate, or incorporate yourself with online assistance. The accountant will assist in preparing accounting adjustments (reclassification enties and year end adjustments) and financial statement and T2 corporate income tax return preparation.
Sr. Member
User avatar
Dec 24, 2007
587 posts
497 upvotes
BC
An important reason not to incorporate right away is that if the business has losses the individual would be able to use them personally to offset other personal income, otherwise the losses get trapped in a corporation. If the business fails (and 50% of small businesses will fail within 5 years) and never achieves profitability, with a sole proprietorship at least the business losses can be claimed so that the owner gets some of money back from tax savings in the future. A strategy many follow is to start up as a sole proprietorship until the business is successful before incorporating.
Deal Addict
User avatar
Aug 15, 2015
1328 posts
169 upvotes
Markham, ON
You would incorporate and put all your money into your corporation. Those money cannot be touched because they were earned before you started your own business.

This answer is simple but can become complicated or variated.
Member
Jun 25, 2011
333 posts
111 upvotes
Alberta
DentDude wrote:
Jun 4th, 2018 1:07 pm
Ah, sorry, you do not know what you are talking about. The article you referenced discusses the tax or lack of tax the individual would pay with the dividend income they earned from their investment portfolio. Dividends are issued by a corporation with after tax dollars meaning the corporation has paid tax on the money already. If you add up the tax the corporation paid plus the tax paid by the individual, it will basically equal the total tax that would have been paid if the individual earned that amount as regular income. That is what integration is. The taxman will always want their fair share no matter what.

Since the OP is the corporation and the individual, the taxman will get their tax from the corporation or the individual or both and it will be the same amount as if the individual earned that money without the corporation.
What you are saying is theoretically true regarding the concept of integration but the integration is not perfect in reality due to different federal and provincial tax rate, the source of income etc and oftentimes people may end of either paying more or less if they receive income directly rather through corporation.

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