In this article, we will discuss basic knowledge about corporation tax. It is based on the CRA income tax guide, which you can download the PDF below.
https://solidtax.ca/wp-content/uploads/2022/09/t4012-21e-Corporation-Tax-Guide.pdf
What do I need to incorporate my business?
You will need to provide personal information (name and address). If you want to create your company name, you will need to provide an explanation of how you came up with this name, your business activities, and the target clients of this company. If the name or a similar name is already taken by another company, you must choose another name.
If name does not matter to your business, the government will assign you a numbered company, which is a guaranteed approval.
To incorporate a federal corporation, please flower the link below
https://www.ic.gc.ca/app/scr/cc/CorporationsCanada/hm.html
To incorporate a Ontario corporation, please flower the link below
https://www.ontario.ca/page/ontario-business-registry
I am an IT consulting contractor and I need to set up a corporation for my contract job. How can I do it?
You can set up a federal corporation through Corporations Canada online. The government will charge you $200. It is quite straightforward. You can do it yourself or we can do it for you for a fee of $90 + HST.
After you incorporate your business, the Canada Revenue Agency will send you a business number. After that, you may need to contact them to get an HST account (RT), payroll account (RP) or dividend account (RZ).
What are the advantages to incorporate my business?
If you are considering incorporating your business, here are the main advantages of incorporation:
- Limited Liability. You are liable only to the amount you invested in the company.
- Income Control. You can determine when you will personally receive income and what type of income (salary or dividend) you will receive.
- Potential Tax Deferral. Because you can defer paying some taxes until a later time, you may be able to pay income taxes at a lower tax bracket later.
- Income Splitting. If your spouse and/or your children are shareholders and work in your corporation, you can pay dividends or salary to them as well.
- The Small Business Tax Deduction. Canadian-controlled private corporations (CCPCs) are entitled to claim a small business deduction on active business income.
What are the disadvantages to incorporate my business?
The main disadvantages of incorporation are:
- Another small business tax return. You must file two tax returns each year, one for your personal income(T1), and one for the corporation(T2).
- Increased Paperwork.
- No Personal Tax Credits. Every dollar a corporation earned is taxed. A corporation can not claim tax credits, whereas a self-employed individual could.
Disclaimer: The Content of the web site is not tax or legal advice. Do not use or otherwise rely upon any of the Content without first seeking your tax or legal advice.
