Should you incorporate a company by yourself?

A question we often get is should I incorporate own corporation to save money? What could possibly go wrong? Don’t do it! We suggest seeking the services of a legal professional to process the incorporation documents for your new company. When a lawyer incorporates your company they provide a minute book with share certificates, director resolutions, articles of incorporations, shareholder registers and other specialized document regarding the new corporation. Sure, you will save money by going on the ministry of finance website and paying the required fee, but it is short sighted and incomplete. If some of documents are not properly prepared at the time of incorporation, you could be setting yourself up for a legal nightmare down the road. For example, when you incorporate yourself, nobody owns shares in company without specific legal documents prepared. Needless to say, this can be catastrophic down the road when you go to sell your business and don’t actually own any shares in your own corporation. We can refer you to legal professional which can provide the incorporation services online and for a reasonable fee. Contact us today!

Salary vs Dividends?

As the owner of a small business, should I pay myself a salary? What deductions would apply?​

If your business is not incorporated, whether or not you pay yourself a "salary" is irrelevant for tax purposes because you and your business are considered a single entity by Canada Revenue Agency (CRA). You will be taxed on your net earnings from the business, which you will include on your personal tax return as self-employment income. Thus, there are no "deductions" to be taken from payments you make to yourself. You are not required to pay Employment Insurance, but you will have to pay income tax and Canada Pension. When you file your tax return for your first year of self-employment, you will have to pay any income tax and CPP premiums payable on your employment income​​

If your small business is incorporated, whether or not you pay yourself a salary is a tax planning decision. Another option is to pay yourself (and other shareholders, depending on share structure) a dividend which is not deductible for the corporation. There are many factors to consider, and professional advice in this area is recommended. If you decide to pay yourself a salary, you will be required to deduct income tax and CPP premiums from your salary, but as owner of the business you might not be eligible to be covered by Employment Insurance

Lifetime Capital Gains Exemption​​

Another tax advantage of incorporation is the $913,630 capital gains deduction on the sale of shares of a qualifying small business corporation. One of the qualifications is that the corporation must be a CCPC with active business income. The lifetime capital gains exemption (LCGE), which equates to a $456,680 lifetime capital gains deduction (1/2 of the $913,630 LCGE). The deduction can be claimed against taxable capital gains on the disposal by an individual of:​​

- qualified small business corporation (SBC) shares​

- qualified farm property, and

- for dispositions occurring after May 1, 2006, qualified fishing property​

This includes exemptions for small business corporation shares, farm property, fishing property, and any capital gains exemptions used in 1994 or earlier. The calculation of the deduction is done on CRA's form T657.