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Unless you need the liability protection or have very high income, the overhead in Canada of having a corp is very costly. Hiring an accountant to file corp tax

Unless you need the liability protection or have very high income, the overhead in Canada of having a corp is very costly. Hiring an accountant to file corp taxes is usually over $1500 a year alone, then you need payroll, etc. Then you're also paying double tax on that income with a corp. Corp receives income and pays corp tax, pays employee (you) you pay income tax. If you have a small side project with low risk then I recommend sole proprietor for sure. In any case, soon as you start generating income you need to track income/expenses, register your business, register for HST and setup a separate bank account. I think TD here charges $25/mo just for that privilege. So yeah, sometimes a fun side project loses its excitement when your stuck doing paperwork and start adding up the expenses, it's not worth it.

mmastrac 10y ago
> paying double tax That's absolutely not true. In Canada, payroll is deducted as an expense against your corporation's earnings. The money left over in the corporation is taxed at corporate rates, but those are quite low for small businesses. Also, more expenses are deductible as a corporation which balance out the much higher costs of accounting. And the corporation is one of the few ways of legally splitting income with a spouse in Canada. For the rest of your comment, I agree that it's not ideal for someone starting out. I think that the bar for starting a personal corp is around $20k/year in side income. I'm not an accountant, but I have been dealing with corporate taxes with one as a small business owner for ten years.
- cdnsteve 10y ago
  Corporate earnings are taxed. Your income is also taxed. That's double tax in my mind.
  - kspaans 10y ago
    No, double-tax is when you pay both federal and provincial income tax on the same income. Or when you pay corporate income tax on profits and then pay dividend taxes after that. EDIT: though as a3camero pointed out, you get tax credits for this later case in Canada, so it's rare to get double-taxed in that case.
  - napoleond 10y ago
    > Corporate earnings are taxed. Your income is also taxed. That's double tax in my mind. No, you are incorrect. There are basically two ways to draw money from a corporation that you own in Canada: through payroll, or through dividends. If you draw it through payroll, that money never sees any taxes through the corporation. The only tax burden in the payroll scenario is your personal income tax (same as any other employment income). If you draw it through dividends, the corporation will pay some tax and you personally will also pay some. However, your personal tax on dividends is less than your personal tax on employment income--the total tax burden is quite similar to what you would pay in taxes if you drew it through payroll, but there can advantages/disadvantages depending on corporate/personal circumstances. Source: Canadian business owner.
  - run4yourlives2 10y ago
    It's relatively straight-forward to keep corporate tax to $0 in situations where it would matter to you as an owner. As others have pointed out, simply giving yourself a raise will avoid the corp paying taxes.
a3camero 10y ago
Often corporations distribute to shareholders using dividends. There's a dividend tax credit that offsets the corporate tax income (more or less). More broadly, there's a principle in Canadian tax called "integration" where the tax authority tries to make it so that it doesn't matter whether you earn the money through a corporation or personally. More information on integration: http://www.ey.com/ca/en/services/tax/taxmatters-july2013-integration-update http://www.ey.com/ca/en/services/tax/taxmatters-july2013-int... So, no, generally there's not "double tax". But yes, there is administrative overhead that could exceed the taxes if you're not making much money.
swalberg 10y ago
Another thing to consider is if you're ever going to sell it. In my case I had a small project that I just claimed on my personal tax returns. I sold it to another Canadian company, and if it was done as a share sale it qualified under the capital gains exemption. It was a fairly costly matter to retroactively separate the project and IP into its own company. The bulk of my lawyer and accountant fees were on this.

mmastrac 10y ago

> paying double tax That's absolutely not true. In Canada, payroll is deducted as an expense against your corporation's earnings. The money left over in the corporation is taxed at corporate rates, but those are quite low for small businesses. Also, more expenses are deductible as a corporation which balance out the much higher costs of accounting. And the corporation is one of the few ways of legally splitting income with a spouse in Canada. For the rest of your comment, I agree that it's not ideal for someone starting out. I think that the bar for starting a personal corp is around $20k/year in side income. I'm not an accountant, but I have been dealing with corporate taxes with one as a small business owner for ten years.

cdnsteve 10y ago
Corporate earnings are taxed. Your income is also taxed. That's double tax in my mind.
- kspaans 10y ago
  No, double-tax is when you pay both federal and provincial income tax on the same income. Or when you pay corporate income tax on profits and then pay dividend taxes after that. EDIT: though as a3camero pointed out, you get tax credits for this later case in Canada, so it's rare to get double-taxed in that case.
- napoleond 10y ago
  > Corporate earnings are taxed. Your income is also taxed. That's double tax in my mind. No, you are incorrect. There are basically two ways to draw money from a corporation that you own in Canada: through payroll, or through dividends. If you draw it through payroll, that money never sees any taxes through the corporation. The only tax burden in the payroll scenario is your personal income tax (same as any other employment income). If you draw it through dividends, the corporation will pay some tax and you personally will also pay some. However, your personal tax on dividends is less than your personal tax on employment income--the total tax burden is quite similar to what you would pay in taxes if you drew it through payroll, but there can advantages/disadvantages depending on corporate/personal circumstances. Source: Canadian business owner.
- run4yourlives2 10y ago
  It's relatively straight-forward to keep corporate tax to $0 in situations where it would matter to you as an owner. As others have pointed out, simply giving yourself a raise will avoid the corp paying taxes.

a3camero 10y ago

Often corporations distribute to shareholders using dividends. There's a dividend tax credit that offsets the corporate tax income (more or less). More broadly, there's a principle in Canadian tax called "integration" where the tax authority tries to make it so that it doesn't matter whether you earn the money through a corporation or personally. More information on integration: http://www.ey.com/ca/en/services/tax/taxmatters-july2013-integration-update http://www.ey.com/ca/en/services/tax/taxmatters-july2013-int... So, no, generally there's not "double tax". But yes, there is administrative overhead that could exceed the taxes if you're not making much money.

swalberg 10y ago

Another thing to consider is if you're ever going to sell it. In my case I had a small project that I just claimed on my personal tax returns. I sold it to another Canadian company, and if it was done as a share sale it qualified under the capital gains exemption. It was a fairly costly matter to retroactively separate the project and IP into its own company. The bulk of my lawyer and accountant fees were on this.