Incorporating Your Business, What Next?
Posted On: 31/08/22 - 0

Is This The Right Time To Incorporate?

Here are some things to consider when thinking of incorporating your business. The tax system in Canada has benefited Corporations. Here in Alberta, businesses are different, usually the reasons to incorporate are the same. The major difference in incorporating is it provides you with a taxation structure and tax planning opportunities. We will talk about how incorporating can help your business, limit liability, and decrease your taxes.

The Income Tax Advantage

The big advantage for incorporating your profitable business is the income tax advantage. A corporation pays a much lower rate of tax on the first $500,000 of active business income. This is different from an unincorporated business. When the money is kept in the business, it is taxed at a lower rate. Withdrawing funds from the business as they are earned, opens you up to taxation at a different rate. Or, those funds will be taxed entirely as income of the business owner. This would be at a higher personal income tax rate.

Protecting Your Personal Assets By Incorporating Your Business

When you incorporate a business, you will be creating a new legal identity called a corporation. This is separate from you personally. You as the owner become an employee of the corporation.

The advantage of incorporating and having a separate legal entity is that limits your personal liability. This is because your personal and business assets will be completely separate.

If someone sues your business, or your business gets into financial difficulty you have protection. They would not be able to go after your personal assets.

As a sole proprietorship, you will remain personally responsible for the debts of the business, including tax.

An increased Professional Profile With An Incorporation

Another benefit of incorporating is that your business will appear more professional to future clients. After you have incorporated, you’ll sign contracts and send invoices through your corporation. Once you have incorporated, you use the company name rather than your personal name.

Tax Plans for Your Corporation

When developing a tax plan for your business talk to an accountant about ways to reduce your tax liability.

Some ways to reduce taxes in your business is income splitting or tax deferral to the future. There is also estate planning, capital gains exemption discussions. And finally, planning for your retirement and the disposing of your business.

Incorporating your business and the associated tax questions that go along with that decision can be intimidating and confusing. This is why it’s always best to speak with a corporate tax professional as well as a lawyer as your business grows.

Since personal and corporate tax as well as family law issues can make this issue complex, please contact Cheryl at our office to discuss your unique situation.

12203-107 Avenue.
Edmonton, Alberta.
T5M 1Y9

Call us:
780.482.7297

cheryl@padgettnw.com