Should You Incorporate in BC? Start With the Surplus You Can Retain
Clement Chung
Incorporation deserves a calculation before it deserves a celebration. For tax planning, one of the first questions is how much money you can leave in the business after covering your personal needs. A lower corporate tax rate, where available, does not tell you what you will keep after money reaches your household. Start with profit and personal spending Revenue is not profit. Subtract genuine business costs, then work out the amount needed personally, including the tax attached to paying it out. If you need nearly all the business income for living expenses, the opportunity to defer personal tax may be limited. If you can retain a consistent surplus, compare what keeping that money inside the corporation could achieve after corporate taxes, investment taxes and administration costs. There can also be legal, commercial or professional reasons to incorporate. Review those with the appropriate lawyer and accountant. Check whether the attractive rules actually apply A corporation is not automatically entitled to every small-business tax benefit. Income type, ownership, association with other corporations and personal-services-business rules can matter. An accountant should establish eligibility and model the combined corporate and personal outcome. Investment income inside the company can introduce further complications. I would not build a plan around a headline percentage without those checks. What should you bring to the discussion? Bring a realistic profit forecast, your household spending requirement, existing debts and a description of how you work with clients. Add the likely annual legal and accounting costs. Then compare operating structures over several years, including how you might eventually take retained money out. For the underlying corporate rules, consult the CRA corporation income-tax guide. The planning question is whether incorporation supports your circumstances, rather than whether someone else found it useful. Related reading: Corporate Cash Flow Planning in BC: Look Beyond the Small Business Tax Rate.
Incorporation deserves a calculation before it deserves a celebration. For tax planning, one of the first questions is how much money you can leave in the business after covering your personal needs. A lower corporate tax rate, where available, does not tell you what you will keep after money reaches your household. Start with profit and personal spending Revenue is not profit. Subtract genuine business costs, then work out the amount needed personally, including the tax attached to paying it out. If you need nearly all the business income for living expenses, the opportunity to defer personal tax may be limited. If you can retain a consistent surplus, compare what keeping that money inside the corporation could achieve after corporate taxes, investment taxes and administration costs. There can also be legal, commercial or professional reasons to incorporate. Review those with the appropriate lawyer and accountant. Check whether the attractive rules actually apply A corporation is not automatically entitled to every small-business tax benefit. Income type, ownership, association with other corporations and personal-services-business rules can matter. An accountant should establish eligibility and model the combined corporate and personal outcome. Investment income inside the company can introduce further complications. I would not build a plan around a headline percentage without those checks. What should you bring to the discussion? Bring a realistic profit forecast, your household spending requirement, existing debts and a description of how you work with clients. Add the likely annual legal and accounting costs. Then compare operating structures over several years, including how you might eventually take retained money out. For the underlying corporate rules, consult the CRA corporation income-tax guide. The planning question is whether incorporation supports your circumstances, rather than whether someone else found it useful. Related reading: Corporate Cash Flow Planning in BC: Look Beyond the Small Business Tax Rate.