Entrepreneurship & Small Business

Consulting via corporation, should I do it?

  • Last Updated:
  • Aug 19th, 2019 7:58 am
[OP]
Newbie
Aug 4, 2005
1 posts

Consulting via corporation, should I do it?

I have a side part-time job which earns me about 20k/year in supplemental income. It brings my yearly income from 80k->100k.

Would it make sense to ask my employer to pay me instead through my corporation? I'm asking from my personal tax perspective and my employer's perspective.

To note, my corporation has been inactive for 10 years and because it's 20k/year there are no HST implications (I never earned enough to pay HST). I also would in theory want to pay myself via dividends -- does this make sense?
4 replies
Deal Addict
Mar 3, 2018
2173 posts
2184 upvotes
GTA
Don’t think there is much advantage at $20K. Corp has to pay tax if you dividend out as it will have no salary deduction. Then you will pay tax on the dividend income. You may also lose your vacation pay as a contractor. Difference would be minimal.

As mentioned above CRA may also view you as a personal services corporation (one client). You are then taxed at the highest corporate rate. You could be far worse off tax wise then you are now.
Deal Addict
Feb 25, 2007
1332 posts
798 upvotes
Ottawa
As others have said, no.

To make use of a corporation worthwhile, you need to have a significant need/opportunity to income split with others (increasingly regulatorily restricted), with your future self (i.e. you don't need your earnings right away and can keep them in your corporation and dribble them out), or to actually make capital investments to grow your business (the intended behaviour the government is trying to incentivize). If you just make money and then spend it in the year you make it (more or less), there's no advantage.

It's possible but not easy to make this worthwhile on $20k/year, given the hassle factor, and you've given no indication the above does apply.

As others have also said, you need to avoid being classed as a PSB, which means among other things convincingly being a a contractor versus an employee. The language in your post ("side part-time job", "employer") makes that a stretch.

Finally, there can be (some, partial) liability protection benefits to being an incorporated contractor; but doesn't sound as if that is top of mind for you either.

I run a consulting business through my corporation, and get tax advantages from doing so, but it takes a certain specific set of circumstances to make it worthwhile.

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