Often times an entrepreneur will consult a lawyer and an accountant when starting a new business. They will also consult a few experienced friends in the business world.
One piece of advice I see people receiving and following is to incorporate their businesses for the tax savings. On the surface, this seems like a good idea because the highest corporate tax rate is a bit over 30% and the highest personal tax rate is 44%. As well, the lowest corporate tax rate stretches all the way from $1 of income to $400,000 of income. That rate is 13%. When you compare 13% to 44%, you tend to jump to the conclusion that incorporation is the way to go.
The devil is in the details they say. On the surface, the tax rates are much different. However, there are other costs to consider besides tax. One very important one is the cost of compliance. I can tell you that a business that is unincorporated might have an annual accounting bill of $500 while a similar incorporated business might have an annual accounting bill of $2,500. There are other costs as well. For example, lawyers and bookkeepers (not to be confused with accountants).
A rule of thumb we use in our office is that each owner must have a taxable income of over $60,000 before it makes economic sense for income and other taxes to incorporate.
Contact us at partner@gilmour.ca or www.gilmour.ca
We are Professional Corporate Tax Accountants / Advisors
Chartered Accountants serving Langley, Surrey and Abbotsford British Columbia
