Personal Finance

Help for Tax Efficient Structure for Side Hustle

  • Last Updated:
  • Aug 9th, 2021 9:43 pm
[OP]
Jr. Member
Apr 28, 2009
126 posts
25 upvotes

Help for Tax Efficient Structure for Side Hustle

I'm a professional with a full time job. I'm in the highest personal income tax bracket. I've been offered a side gig for consulting work that may bring in 50-100K a year in additional income.

What is the best and simplest way to bill for this work? Should I incorporate or register a business in my name? I'm weary about doing the additional work given the high tax rate that would apply on my income.

Any advice on how to set this up would be appreciated!

Thanks!
9 replies
Jr. Member
Jul 21, 2020
106 posts
73 upvotes
Ottawa
I am interested to know as well. I am familiar with us tax system where you can create a LLC under C-corp tax structure and withdraw part of the income (side hustle) as dividend. So I am curious how in Canada people can minimize tax once they are in the high income tax bracket or CRA already closed all the tax loop holes. Anyone?
Last edited by wisden on Aug 9th, 2021 2:43 pm, edited 1 time in total.
Deal Addict
Mar 3, 2018
3020 posts
3386 upvotes
GTA
The benefit of incorporation is to defer tax and limit liability. If you are not going to be drawing on the earnings at this time from the side gig then go the incorporation route. If you plan to draw on the side gig earnings for current personal use then there is little tax benefit to incorporating. The total tax payable would be similar after paying corp tax and the tax on dividends you receive.

Many professionals leave the earnings in the corporation to invest and draw later as part of their retirement planning.
Deal Fanatic
User avatar
Jan 16, 2011
7175 posts
9150 upvotes
The NORTH
ouaouaron wrote: I'm a professional with a full time job. I'm in the highest personal income tax bracket. I've been offered a side gig for consulting work that may bring in 50-100K a year in additional income.

What is the best and simplest way to bill for this work? Should I incorporate or register a business in my name? I'm weary about doing the additional work given the high tax rate that would apply on my income.

Any advice on how to set this up would be appreciated!

Thanks!
If you are in the highest personal income tax bracket you can probably afford to talk with an accountant or lawyer about this and get better information then from an internet forum.
Deal Addict
Mar 3, 2018
3020 posts
3386 upvotes
GTA
kr0zet wrote: If you are in the highest personal income tax bracket you can probably afford to talk with an accountant or lawyer about this and get better information then from an internet forum.
That goes without saying.
But there is nothing wrong with getting opinions and information from a financial forum like this to be able to ask the right questions. Many accountants and lawyers do what is best to generate fees for themselves. Sometimes their interests aligns with the client but not always.
Deal Addict
Jun 8, 2004
2029 posts
1094 upvotes
Oakville
DaveTheDude wrote: The benefit of incorporation is to defer tax and limit liability. If you are not going to be drawing on the earnings at this time from the side gig then go the incorporation route. If you plan to draw on the side gig earnings for current personal use then there is little tax benefit to incorporating. The total tax payable would be similar after paying corp tax and the tax on dividends you receive.

Many professionals leave the earnings in the corporation to invest and draw later as part of their retirement planning.
I didn't think incorporating helped any more for Personal Service Corporations.
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
I don't fully understand it myself but I would look to see if income splitting would apply to you:
https://www.canada.ca/en/revenue-agency ... dults.html


If incorporating, I would start by subtracting $5k for the cost of accounting and other corporate paper work. Of course much less if you still have time left to do it yourself.
Deal Addict
Mar 3, 2018
3020 posts
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GTA
cba123 wrote: I didn't think incorporating helped any more for Personal Service Corporations.
We don't know that the OP would be a PSB corp as they already have a full time job and the new side gig is consulting that could be many clients. Anyways if the client contract is properly written the risk of being a labelled a PSB should not be an issue. Things like the OP sets the hours of work, and uses their own equipment etc.
Sr. Member
Dec 24, 2007
853 posts
141 upvotes
GTA
If you are in IT the biggest personal spending often are in monitors, new equipments, gadgets, fancy desks chairs, online courses, certificates, etc at least can write off some of these expenses plus possibly automotives. As a T4 employee these are all after tax spending :(

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