Decision to incorporate more complicated than you think

A local accountant is addressing the question that every business owner must at some point consider: Is it time to incorporate?

Nicole Cahoon

A local accountant is addressing the question that every business owner must at some point consider: Is it time to incorporate?

While the motivations and potential benefits (and drawbacks) to incorporating are going to vary for each business owner, chartered professional accountant Nicole Cahoon says the answer generally comes down to one major factor.

“If you’re earning more income from your business than you need to draw from it, it’s generally a good time to have that discussion with your accountant,” says Cahoon. “One of the main reasons to incorporate is the lower corporate tax rate compared to personal marginal rates, which is what you pay as a sole proprietor or partnership. If your business can retain earned income within the corporation, you can defer tax to future years on that income to the extent that it’s not distributed to you as a salary or dividend.”

Further reducing those taxes on corporations, she says, is the federal small business tax deduction, which applies to the first $500,000 of “active business income” earned by a Canadian-controlled private corporation. Cahoon notes, however, that there are some exclusions to the deduction, such as property income and income earned through a personal service business.

“It’s really important that if you’re thinking about incorporating you talk to your accountant to make sure you fully understand the tax implications and how they apply in your case.”

Another factor that may affect the decision to incorporate or not is the legal protection a corporation can provide. Here too, however, Cahoon warns that the protective shelter of a corporation may not extend as far as many people think.

“A corporation won’t protect you from all forms of liability,” she says. “Generally speaking, your liability is limited to the amount you invest in the company for your shares. In some situations, that protection disappears altogether, like if you guarantee a loan for the corporation or there’s GST or payroll tax owing to Canada Revenue Agency.”

Even once the decision to incorporate is made, it’s not necessarily a simple affair, as rules regarding the transfer of capital assets and the sale of shares could have serious tax implications and should be carefully considered.

“At the end of the day, incorporating your business is a complicated process,” says Cahoon. “I’d caution anyone considering incorporating to seek professional advice to ensure the resulting corporation is structured appropriately. With appropriate planning alongside your accountant, incorporating can be extremely advantageous.”

Just Posted

Transit service expansion rolling into the Comox Valley

4,000 service hours added to CV Transit System

Motorcycle stolen from Courtenay residence

Comox Valley RCMP report, week ending Aug. 20

Sisters swimming to protect B.C. coastal ecosystems

Jennifer and Alyssa Madill are preparing to swim from Denman Island to Hornby Island

Foul play not suspected in man’s death in Chemainus

Long attempt made to revive unidentified person on the dock

Social media, digital photography allow millennials to flock to birdwatching

More young people are flocking to birdwatching than ever, aided by social media, digital photography

Prime minister greeted by B.C. premier as cabinet retreat begins

PM Justin Trudeau and Premier John Horgan meet in advance of federal cabinet meetings in Nanaimo

Are your kids anxious about going back to school?

BC Children’s Hospital offers tips to help your children be mindful and reduce stress

New trial ordered for James Oler in B.C. child bride case

Meanwhile, appeal court dismisses Emily Blackmore’s appeal of guilty verdict

This trash heap in Vancouver could be yours for $3.9 million

Sitting atop 6,000 square feet, the home was built in 1912, later destroyed by fire

Team Canada’s next game postponed at Little League World Series

They’re back in action on Wednesday against Peurto Rico

Ex-Trump lawyer Cohen pleads guilty in hush-money scheme

Said he and Trump arranged payment to porn star Stormy Daniels and a former Playboy model to influence the election

Former Trump aide Paul Manafort found guilty of eight charges

A mistrial has been declared for the other 10 charges against him

Canada’s team chasing elusive gold medal at women’s baseball World Cup

Canada, ranked No. 2 behind Japan, opens play Wednesday against No. 10 Hong Kong

Most Read