• Last Updated:
  • Oct 9th, 2020 12:52 pm
[OP]
Sr. Member
Jul 2, 2013
632 posts
168 upvotes
Aurora

I think I need to incorporate

I did quite well in 2019 compared to prior years so my accountant is recommending that I incorporate. I run a one man show legitimate home repair business (its just me and no other employees)
In 2019 I invoiced about $120K in work and after expenses it looks like I made 60k or so.
Is my accountants fee reasonable to do this for me? What would I save by doing it myself?
Should I incorporate Federally or Provincially? My guess is Provincially as I will only be operating here in Ontario.
Is incorporating something I should do myself or get should I get my accountant to do instead? Her message is below:

To incorporate, you need to choose a unique name and then decide to incorporate Federally or Provincially.
I can provide the nuans name search report and incorporation services.
My nuans name report fee will be $50+hst. However, the nuans fee will be included if I also incorporate the business for you. The fees will be as follows;
For a Federal Corporation, my price is $500+hst. This includes the nuans name search report, Federal registration and Ontario registration.
For and Ontario Corporation, my price is $600+hst. This includes the nuans name search report and Ontario incorporation.
The fee for the Ontario corporation is higher because the government fee is higher and also I will have to use an Ontario specified service provider.
21 replies
Jr. Member
Oct 15, 2016
157 posts
43 upvotes
Looks like they're charging $300 for the incorporation & $30 for the NUANS report.

That's a reasonable price to pay if the accountant does everything right with you doing little to no work.
Koodo & Public Mobile Customer.
Jr. Member
Oct 15, 2016
157 posts
43 upvotes
DIY prices

Federal
Government fee $200

Ontario
Government fee $300 (this includes the fee for the 3rd party company Ontario forces you to use). -- online
$360 by mail or in person.

$13 - $25 for a NUANS report.
Koodo & Public Mobile Customer.
Deal Addict
Mar 3, 2018
1589 posts
1552 upvotes
GTA
The two main reasons someone incorporates are to defer income tax and limit liability if sued. If you are only netting $60K most of that is probably being used personally. So there would be little income to defer tax on.

Not a knock on your accountant but there are a lot of ongoing fees involved if you incorporate. I personally would not consider incorporating unless I was netting over $100K and could utilize the tax deferral strategies. Otherwise the fees would exceed any benefit.
[OP]
Sr. Member
Jul 2, 2013
632 posts
168 upvotes
Aurora
DaveTheDude wrote: The two main reasons someone incorporates are to defer income tax and limit liability if sued. If you are only netting $60K most of that is probably being used personally. So there would be little income to defer tax on.

Not a knock on your accountant but there are a lot of ongoing fees involved if you incorporate. I personally would not consider incorporating unless I was netting over $100K and could utilize the tax deferral strategies. Otherwise the fees would exceed any benefit.
The liability issue is a good reason to do this though isnt it? I have no employees ad only work on residential jobsites that are owner occupied. If I incorporate, do I have to have wsib?
Deal Addict
Mar 3, 2018
1589 posts
1552 upvotes
GTA
lehmanr wrote: The liability issue is a good reason to do this though isnt it? I have no employees ad only work on residential jobsites that are owner occupied. If I incorporate, do I have to have wsib?
As a sole proprietor in home repair you are already required to have WSIB for yourself. Surprised your accountant did not mention it.

In regards to liability you should have liability insurance whether a sole proprietor or incorporated.
Sr. Member
User avatar
Dec 28, 2010
625 posts
280 upvotes
You can incorporate yourself without a fee.

As a sole prop you seem to be well on track and I would keep everything the way it is, without incorporation. The fees your accountant is charging you are outrageous, don't fall for that but do your own due diligence, it's not rocket science. Read this.
Do you want to meet the love of your life? Look in the mirror. | Byron Katie
Jr. Member
Apr 2, 2020
158 posts
52 upvotes
Years ago when I opened my first business my accountant told me to incorporate. I asked why, after examining my situation, she told me there were no tax benefits but there were probably liability benefits, so go talk to my lawyer. I then talked to my lawyer who also told me to incorporate. I asked why, after examining my situation, he told me there were no liability benefits but there were probably tax benefits, so go talk to my accountant.
[OP]
Sr. Member
Jul 2, 2013
632 posts
168 upvotes
Aurora
DaveTheDude wrote: As a sole proprietor in home repair you are already required to have WSIB for yourself. Surprised your accountant did not mention it.

In regards to liability you should have liability insurance whether a sole proprietor or incorporated.
I dont need wsib. As long as I only work on residential owner occupied properties. I just cant do any tenant work or construction or have any employees. This info came direct from a WSIB office.
[OP]
Sr. Member
Jul 2, 2013
632 posts
168 upvotes
Aurora
VESTEGAARD wrote: You can incorporate yourself without a fee.

As a sole prop you seem to be well on track and I would keep everything the way it is, without incorporation. The fees your accountant is charging you are outrageous, don't fall for that but do your own due diligence, it's not rocket science. Read this.
Pronoia wrote: Years ago when I opened my first business my accountant told me to incorporate. I asked why, after examining my situation, she told me there were no tax benefits but there were probably liability benefits, so go talk to my lawyer. I then talked to my lawyer who also told me to incorporate. I asked why, after examining my situation, he told me there were no liability benefits but there were probably tax benefits, so go talk to my accountant.
Thanks I think I'm going to keep things the way they are for now. I don't anticipate this year being better than 2019 anyway due to the current circumstances.

My business net income was $51,588.
This is the most recent message from my accountant:

I needed to pay back $348 for my rrsp home buyers plan and I didnt buy into any rrsps for 2019.
My tax payable is $12,577, this includes $4905 cpp.
If I incorporate, there will be an annual corporation tax return fee of $1000 +hst.
Once you incorporate, you can defer the tax and have limited liability. Currently the corporate tax rate is 13%.
If you just draw money from the Corporation as a dividend only, you'll pay less tax on your personal tax return. For example, if you have $50,000 in dividends only, your personal tax payable will be about $3600.
Additionally corporate tax payable $6500 for $50,000 net income. Total personal and corporate tax payable will be $10,100. Total saving $12577 - $10100=$2477
.
Deal Fanatic
Aug 21, 2007
5514 posts
478 upvotes
Markham
one of the reasons to incorporate is due to possible tax deferral

you can pay tax on corporate earnings, and if you dont need it all, you can leave it in your corp to grow further...more after tax cash leftover that could theoretically grow faster

somethin else to consider
Member
Feb 9, 2020
201 posts
126 upvotes
lehmanr wrote: Thanks I think I'm going to keep things the way they are for now. I don't anticipate this year being better than 2019 anyway due to the current circumstances.

My business net income was $51,588.
This is the most recent message from my accountant:

I needed to pay back $348 for my rrsp home buyers plan and I didnt buy into any rrsps for 2019.
My tax payable is $12,577, this includes $4905 cpp.
If I incorporate, there will be an annual corporation tax return fee of $1000 +hst.
Once you incorporate, you can defer the tax and have limited liability. Currently the corporate tax rate is 13%.
If you just draw money from the Corporation as a dividend only, you'll pay less tax on your personal tax return. For example, if you have $50,000 in dividends only, your personal tax payable will be about $3600.
Additionally corporate tax payable $6500 for $50,000 net income. Total personal and corporate tax payable will be $10,100. Total saving $12577 - $10100=$2477
.
Now a days the only time I would recommend incorporation for a simple business like this is either for liability reasons or for deferral reasons. If you're not deferring anything and there's no real liability concern then there's no real reason incurring the cost of incorporation.

With respect to the cost of incorporation: there is a cost even if you do it yourself. It's $200 to do it with federally (plus annual renewal fees) and $300 provincially. Obviously, being a professional, I'm biased to say that you should still have a professional doing it (if and when it makes sense to incorporate) because typically you may want to add in different classes of shares, possibly different dividend sharing rights, etc... However, a lot of times people are incorporating when they don't benefit from it sufficiently to justify the cost...

The last part from your accountant I don't really agree with. We have a system called integration to make sure that the total amount of taxes you pay as an owner (corporate + personal combined) is equal to what you would pay if you had earned everything personally. This way there's no double taxation. The example you were given feels contrived as the tax saving he/she is quoting I suspect is the personal exemption plus whatever regular credits you would have gotten anyways. While integration is not perfect, it's only off maybe 1 to 2% throughout the different brackets. If you take all the earnings out, there is no savings as a result of the corporation. If anything it only costs you more due to the additional compliance cost.

Most accountants (us included) would rather work on corporate returns. There's more work to be done so you can charge more. Usually corporates also have to be more organized (at least compared to the shoebox T2125s) so it's less headaches. Plus it's not all clumped up to be done in April... April is busy enough as is. Keep that bias in mind.
[OP]
Sr. Member
Jul 2, 2013
632 posts
168 upvotes
Aurora
PolarisCPA wrote: Now a days the only time I would recommend incorporation for a simple business like this is either for liability reasons or for deferral reasons. If you're not deferring anything and there's no real liability concern then there's no real reason incurring the cost of incorporation.

With respect to the cost of incorporation: there is a cost even if you do it yourself. It's $200 to do it with federally (plus annual renewal fees) and $300 provincially. Obviously, being a professional, I'm biased to say that you should still have a professional doing it (if and when it makes sense to incorporate) because typically you may want to add in different classes of shares, possibly different dividend sharing rights, etc... However, a lot of times people are incorporating when they don't benefit from it sufficiently to justify the cost...

The last part from your accountant I don't really agree with. We have a system called integration to make sure that the total amount of taxes you pay as an owner (corporate + personal combined) is equal to what you would pay if you had earned everything personally. This way there's no double taxation. The example you were given feels contrived as the tax saving he/she is quoting I suspect is the personal exemption plus whatever regular credits you would have gotten anyways. While integration is not perfect, it's only off maybe 1 to 2% throughout the different brackets. If you take all the earnings out, there is no savings as a result of the corporation. If anything it only costs you more due to the additional compliance cost.

Most accountants (us included) would rather work on corporate returns. There's more work to be done so you can charge more. Usually corporates also have to be more organized (at least compared to the shoebox T2125s) so it's less headaches. Plus it's not all clumped up to be done in April... April is busy enough as is. Keep that bias in mind.
Thank you. I have decided to keep things the way they are for now. Can I incorporate mid year for example if I see a trend of increased revenue?
Also I see some company that are Inc and some are Ltd. Is there a difference? Lastly why is the corporate filing $1000? in comparison to the $100 I am charged for personal tax as a sole prop?
Member
Feb 9, 2020
201 posts
126 upvotes
lehmanr wrote: Thank you. I have decided to keep things the way they are for now. Can I incorporate mid year for example if I see a trend of increased revenue?
Also I see some company that are Inc and some are Ltd. Is there a difference? Lastly why is the corporate filing $1000? in comparison to the $100 I am charged for personal tax as a sole prop?
You can incorporate whenever you like. If there's good will you will want to do a rollover though. To me Inc. vs Ltd. is just a naming thing but I'm sure there was some kind of legitimate reasons for it that I don't remember right now. Doesn't make a difference tax wise.

I would say if your accountant is charging you $100 for self employed either your being under charged, or they're just filling whatever number you give them without checking, or it's a 1 line T2125. Self-employed returns can cost just as much as corporate returns depending on the amount of work/complexity involved. An non-incorporated business can do everything an incorporated business can after all.
[OP]
Sr. Member
Jul 2, 2013
632 posts
168 upvotes
Aurora
Well I am bumping this up because it turns out I'm busier than I thought I was going to be. This has been a record breaking month for income and next month is probably going to be even higher. I have been increasing my material inventory to avoid paying taxes at the end of the year. Should I wait to incorporate in January or should I do so now? What is a roll over?
I owe 12.5k in taxes from last year and I don't want to get hit with more taxes this year.

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