[top_dyl]

Say both a small business owner and an employee working for a company each who earn 250k yearly, how much more of a tax advantage would a self employed small business owner get compared to someone working for a company?

I assume an employee who makes 250k/yearly would pay around 90,000 a year in taxes to the government. How would a small business self employed person go around this and avoid getting taxed so much?

[Alphamale]

They see a qualified accountant.

[q0192837465]

Read up on tax integration.

[dinosaur]

Write off EVERYTHING!

I was self-employed in 2007 and made just over 97K and only paid $7000 in tax.

Wrote off:
-Car
-Car insurance
-Gas
-Clothing
-Office supplies (computer, printer, etc...)
-Hotels
-Food
-Accountant fees
-Cell phone
- % of housing (mortgage/rent) for your "home office"
-Internet
-Hydro

Get a really good accountant to do your taxes and keep your receipts for EVERYTHING. It cost me about $600 for the dude to do my taxes for me and it was worth it. There are also provisions for "office parties", etc...

I do not recommend doing it on your own. Just a head up though...start organizing your receipts right away or as you go along. Will save you a big headache during tax time.

[tiger_handheld]

0 tax advantage.

the canadian tax system is designed so that no person is better as an individual or business shareholder/owner.

if you like, I can scan some of my very old TAX 2 notes (if i can find them in a timely fashion) - so you see the difference.

The biggest advantage is business owners/shareholders receive a tax deferral.



protip brought to you by: D & G Consulting Services Accounting | Tax | Strategy

[tiger_handheld]

Read up on tax integration.

You must've taken a tax 2 class somewhere along your life.

[punkwax]

lol I know someone who writes off dog food for the "guard dog" of his "home office"

I've never heard of anyone being licked to death..

[fsy82]

Business taxes are alot lower on your net income while for your personal taxes you get taxed a whole lot more. If you need advise feel free to PM me as we've been in the accounting business for over 25 years.

Now that's a pro tip;)

[Ferra]

on the textbook, no difference (tax integration...blah blah blah)

real world, quite a huge difference....mainly because you can write off expenses and recover HST paid (12% saving, if you are a small business / HST registrant)

most people write off a lot of expense that are really not "business" expense.....for example, $1000 camera, computers, tablets, nice cars...etc stuffs that you like to have personally but your business does not need...
Also....all your expenses are HST free. (at least until those retards revert back to GST/PST lol)

Say both a small business owner and an employee working for a company each who earn 250k yearlyif you have a business that only serve one company, you are deemed to be a personal service business, and most of the business deductions are disallowed by CRA rules.

[jtroung]

Write off EVERYTHING!

I was self-employed in 2007 and made just over 97K and only paid $7000 in tax.

Wrote off:
-Car
-Car insurance
-Gas
-Clothing
-Office supplies (computer, printer, etc...)
-Hotels
-Food
-Accountant fees
-Cell phone
- % of housing (mortgage/rent) for your "home office"
-Internet
-Hydro

Get a really good accountant to do your taxes and keep your receipts for EVERYTHING. It cost me about $600 for the dude to do my taxes for me and it was worth it. There are also provisions for "office parties", etc...

I do not recommend doing it on your own. Just a head up though...start organizing your receipts right away or as you go along. Will save you a big headache during tax time.

Intrigued. If I go to a conference, I guess I can expense all that. Can you recommend an accountant? I too am self employed.

[Bahhbeehhaaaa]

Write off EVERYTHING!

I was self-employed in 2007 and made just over 97K and only paid $7000 in tax.

Wrote off:
-Car
-Car insurance
-Gas
-Clothing
-Office supplies (computer, printer, etc...)
-Hotels
-Food
-Accountant fees
-Cell phone
- % of housing (mortgage/rent) for your "home office"
-Internet
-Hydro

Get a really good accountant to do your taxes and keep your receipts for EVERYTHING. It cost me about $600 for the dude to do my taxes for me and it was worth it. There are also provisions for "office parties", etc...

I do not recommend doing it on your own. Just a head up though...start organizing your receipts right away or as you go along. Will save you a big headache during tax time.

that's close to 6 figure and only 7k tax? that's very good!!

[sexyaccord]

so do you guys do a salary or a dividend ?
or do you guys just keep it as retained earnings

[q0192837465]

Generally speaking u do save a bit by declaring dividends over paying salary. Many of our clients switch from paying themselves salaries to dividends.

[tiger_handheld]

Intrigued. If I go to a conference, I guess I can expense all that. Can you recommend an accountant? I too am self employed.

If it's business related, you can :)
As long as you can justify without bs'ing - cra will accept.

guard dog for home office needs to eat therefore pet food is an expense -- not sure how much cra will care (given the amount is material) ..

I also heard of 'company mascot' needs to eat and stay healthy (for dog license and vaccines). I made sure these were paid for by the owner and not the corp - as a professional, I could not let them slide ...

[jtroung]

If it's business related, you can :)


Yes, conference fee, hotel and flight. Probably not the bar tab though huh :D

[sleepywheel]

tiger_handheld is right. You can't write off everything even though it's easy to do until CRA decides it's time for an audit.

I have my own business too and the CA that I use is a no nonsense type of guy though we've been friends for over 25 years. He goes through my books with a fine toothed comb and always seems to find things that are questionable or entered incorrectly. His reasoning is that if he allows things to slide and I get audited, CRA will want to have a close look at his other customers and see what they're trying to get away with. Not good for business.

But back to the original question. I take a salary but it's at the higher end of a low tax bracket. Mostly I just leave it in the company which is taxed at a much lower rate than personal tax. When, or if it ever came time for me to retire, I would start taking the money out then since I won't be working and hopefully at a lower personal tax rate. I call it my retirement fund since I don't belong to a union or company pension plan. If any of the accountants on here think I'm doing it wrong, please let me know. I really don't want to screw things up.

[jtroung]

I did the math for the scenarios of incorporating and paying myself a dividend against declaring it as income.

I did not find a tax advantage.

[fsy82]

tiger_handheld is right. You can't write off everything even though it's easy to do until CRA decides it's time for an audit.

I have my own business too and the CA that I use is a no nonsense type of guy though we've been friends for over 25 years. He goes through my books with a fine toothed comb and always seems to find things that are questionable or entered incorrectly. His reasoning is that if he allows things to slide and I get audited, CRA will want to have a close look at his other customers and see what they're trying to get away with. Not good for business.

But back to the original question. I take a salary but it's at the higher end of a low tax bracket. Mostly I just leave it in the company which is taxed at a much lower rate than personal tax. When, or if it ever came time for me to retire, I would start taking the money out then since I won't be working and hopefully at a lower personal tax rate. I call it my retirement fund since I don't belong to a union or company pension plan. If any of the accountants on here think I'm doing it wrong, please let me know. I really don't want to screw things up.

This right here is the correct way in doing things. You're saving in taxes and if need be you can pull out some Shareholder loan when and if emergency funds are required.

[fsy82]

I did the math for the scenarios of incorporating and paying myself a dividend against declaring it as income.

I did not find a tax advantage.

One thing you should always know. If you fuck up then people can come at you personally. Meaning your personal bank statements, house, cars, etc. If your incorporated they can only come after the business assets and not your personal assets. Also the tax rate on companies are way lower than personal tax rates.

[fsy82]

Write off EVERYTHING!

I was self-employed in 2007 and made just over 97K and only paid $7000 in tax.

Wrote off:
-Car
-Car insurance
-Gas
-Clothing
-Office supplies (computer, printer, etc...)
-Hotels
-Food
-Accountant fees
-Cell phone
- % of housing (mortgage/rent) for your "home office"
-Internet
-Hydro

Get a really good accountant to do your taxes and keep your receipts for EVERYTHING. It cost me about $600 for the dude to do my taxes for me and it was worth it. There are also provisions for "office parties", etc...

I do not recommend doing it on your own. Just a head up though...start organizing your receipts right away or as you go along. Will save you a big headache during tax time.

I hope you have your books in order because when and if CRA audits you they will look deeply to verify everything you have stated in your personal tax return. They even can deny it if your reasons are not good enough for their standards.

[jtroung]

One thing you should always know. If you fuck up then people can come at you personally. Meaning your personal bank statements, house, cars, etc. If your incorporated they can only come after the business assets and not your personal assets. Also the tax rate on companies are way lower than personal tax rates.

Yeah, I knew that and am taking the risk. I don't see my business as easily "fuck up"-able. But good point though, one a self-employed fellow should know.

The fact about the lower tax rate, that only holds true if the money stays within the company correct? The tax when taking it back out pretty much balances it out. Or did I mess up the numbers somewhere?

Accounting is definitely not my strong point :)

[sleepywheel]

One thing you should always know. If you fuck up then people can come at you personally. Meaning your personal bank statements, house, cars, etc. If your incorporated they can only come after the business assets and not your personal assets. Also the tax rate on companies are way lower than personal tax rates.

That's what scares me. If I leave all of my savings in the company account and it gets sued, it's all gone. What are the thoughts of starting up another company and transferring the money into it? I think the construction guys always do that. They erect a building under a numbered company and when the job is done, the funds are taken out and the company is dissolved. That also means that there is no one to sue. Besides that, isn't there something called "piercing the corporate veil" which means the person being sued can't hide behind the company? Very confusing stuff.

[fsy82]

Yeah, I knew that and am taking the risk. I don't see my business as easily "fuck up"-able. But good point though, one a self-employed fellow should know.

The fact about the lower tax rate, that only holds true if the money stays within the company correct? The tax when taking it back out pretty much balances it out. Or did I mess up the numbers somewhere?

Accounting is definitely not my strong point :)

Not necessarily. For example

Revenue= $100,000

Expenses = $50,000
Your Salary=$30,000 (if done correctly you will either pay very little or get a refund in your personal tax. Also the company will remit monthly payroll deductions on your behalf.)
Net Profit=$20,000 (Company will be taxed at roughly 13%=2,600 in Corporate Tax)

Lets say the following year the company doesn't make a net income but a net loss. You can recoup some of the Corporate tax you paid the previous year.

[fsy82]

That's what scares me. If I leave all of my savings in the company account and it gets sued, it's all gone. What are the thoughts of starting up another company and transferring the money into it? I think the construction guys always do that. They erect a building under a numbered company and when the job is done, the funds are taken out and the company is dissolved. That also means that there is no one to sue. Besides that, isn't there something called "piercing the corporate veil" which means the person being sued can't hide behind the company? Very confusing stuff.

You technically could but again there is always a paper trail. The money you transfer to another company will become a Loans Receivable. Unless you register that company under some other than yourself. But again if CRA is involved and you owe them money than that can be considered tax evasion. Like I always say to my clients tax fraud is worse than murder in this country.

[jtroung]

Not necessarily. For example

Revenue= $100,000

Expenses = $50,000
Your Salary=$30,000 (if done correctly you will either pay very little or get a refund in your personal tax. Also the company will remit monthly payroll deductions on your behalf.)
Net Profit=$20,000 (Company will be taxed at roughly 13%=2,600 in Corporate Tax)

Lets say the following year the company doesn't make a net income but a net loss. You can recoup some of the Corporate tax you paid the previous year.

Then what happens when I need that 20k? Doesn't the tax from that equal out? That's what I found, I only saved a few hundred at best.

[no_clue]

I hope you have your books in order because when and if CRA audits you they will look deeply to verify everything you have stated in your personal tax return. They even can deny it if your reasons are not good enough for their standards.

This,
Your business has to be related to your expenses. For example if you own a laundromat, writing off a F150 truck will fly by the CRA but good luck explaining why you wrote off the lease of a Porsche 911. Does your business promote parts/service of sports cars? Do you need to impress clients like a realtor to earn their business? etc etc

[sleepywheel]

You technically could but again there is always a paper trail. The money you transfer to another company will become a Loans Receivable. Unless you register that company under some other than yourself. But again if CRA is involved and you owe them money than that can be considered tax evasion. Like I always say to my clients tax fraud is worse than murder in this country.

Yeah, knew there was a catch somewhere. Don't want to run afoul of the taxman. I had problems when I started as a sole proprietorship and switched over to an incorporated company. Didn't really know what I was doing and messed things up. CRA called me and started asking all kinds of questions, that's when I got the professionals involved and straightened things out. Cost me a few bucks but now everything is running smoothly.

[tiger_handheld]

Yes, conference fee, hotel and flight. Probably not the bar tab though huh :D

If you spend $200 at the bar and it lead to or resulted in a business relationship you can write it off. Again, it's all about how material the amount is. CRA materiality is $500.

If your bar tab is $1500 - you will have some major explaining to do. However, if that results in a direct revenue of $5000 on a monthly/yearly/etc.. basis and you can proove it - you are good as gold.

[tiger_handheld]

That's what scares me. If I leave all of my savings in the company account and it gets sued, it's all gone. What are the thoughts of starting up another company and transferring the money into it? I think the construction guys always do that. They erect a building under a numbered company and when the job is done, the funds are taken out and the company is dissolved. That also means that there is no one to sue. Besides that, isn't there something called "piercing the corporate veil" which means the person being sued can't hide behind the company? Very confusing stuff.

You technically could but again there is always a paper trail. The money you transfer to another company will become a Loans Receivable. Unless you register that company under some other than yourself. But again if CRA is involved and you owe them money than that can be considered tax evasion. Like I always say to my clients tax fraud is worse than murder in this country.


@ sleepy - have you ever thought about a holding company? It'll cost you a few toonies to set it up, but I think it's worth it. OPCO will be it's own entity with HOLDCO being the majority shareholder. All your profits transferred to HOLDCO will be taxed higher because it's passive income, but once you dividend out it'll trigger a tax credit to HOLDCO.
* I personally don't know all that much about holdco's - I just generally know how they are used.

@Fsy - interested to see your thoughts on such structure..

[fsy82]

@ sleepy - have you ever thought about a holding company? It'll cost you a few toonies to set it up, but I think it's worth it. OPCO will be it's own entity with HOLDCO being the majority shareholder. All your profits transferred to HOLDCO will be taxed higher because it's passive income, but once you dividend out it'll trigger a tax credit to HOLDCO.
* I personally don't know all that much about holdco's - I just generally know how they are used.

@Fsy - interested to see your thoughts on such structure..

I mean we could always find a way to get your money out with paying the least amount of taxes but I have to ask myself is this person trying to evade the tax. CRA lately has been cracking down a lot and to be honest its worth pay a little more tax than paying interest and penalties later on for doing something you shouldn't have. A lot of newbie or less strict accountants are being caught for doing tax evasion. People think hey my accountant did it for me so i'm not responsible. But as soon as you sign your tax return your telling CRA that i understand what is being submitted and accept it to be true.

[fsy82]

Then what happens when I need that 20k? Doesn't the tax from that equal out? That's what I found, I only saved a few hundred at best.

You can either increase your salary the following year to expense the 20,000, pay your self a dividend or if you have more than 20,000 invested into the company than pay out some of your shareholder loan.

[dinosaur]

Intrigued. If I go to a conference, I guess I can expense all that. Can you recommend an accountant? I too am self employed.

I write of all conferences/AGMs/Forums/etc...I would go to. Sometimes I would spend an extra few days and write those off as well.

I use: Brown's Income Tax : Welcome (http://brownsincometax.com/) Guy's name is Damien. Cool guy who will sit and talk to you for awhile about everything. Gives you tip/pointers on how to write off other things.....Kind of a tit-pervert though. I am will to sacrifice him talking to my chest for a good deal though :)

that's close to 6 figure and only 7k tax? that's very good!!

Dude, I nearly pissed my pants, I was so happy. It was my first time making good money and had nightmares that I was going to be fucked!

I hope you have your books in order because when and if CRA audits you they will look deeply to verify everything you have stated in your personal tax return. They even can deny it if your reasons are not good enough for their standards.

I have EVERYTHING! I have boxes and boxes of receipts, papers, spreadsheets, forms, etc....I still think it is too good to be true!


The only thing that sucks about being self-employed was having to apply for a mortgage. HUGE headache, but it got done. You really need to make sure everything is straight before the bank will even look at you.

Also, having to pay 9% CPP. Usually your employer pays 4.5% and you pay 4.5%, but being self-employed, you need to pay both.

Keeping everything and dealing with "tax time" (which is in June for the self-employed) can be a real pain in the ass and I have spent quite a few nights organizing everything, but when it comes time to paying, it is REALLY worth it.

[dinosaur]

And, obviously everything has to be pretty legit in the way of writing shit off.

I don't write off all my groceries, etc....but maybe once a month I'll throw a non-work related restaurant receipt in the box. Same with clothing...

I don't buy a new car every year, and the vehicle I have is pretty related to my business.

I do double dip however....I will contact for a company who pays my gas...but doesn't ask for receipts....I take those receipts and use them for myself. Some times the same with field supplies, hotels, and food.

[achiam]

You can write A LOT of shit off. One of my close friends works for his family's company, and leased a 2010 750i. After write-offs, he only pays $6,000/year out of pocket to operate the car. Compare that to joe-blow who purchases it for about $120k AND pays for the massive depreciation.

[sleepywheel]

I mean we could always find a way to get your money out with paying the least amount of taxes but I have to ask myself is this person trying to evade the tax. CRA lately has been cracking down a lot and to be honest its worth pay a little more tax than paying interest and penalties later on for doing something you shouldn't have. A lot of newbie or less strict accountants are being caught for doing tax evasion. People think hey my accountant did it for me so i'm not responsible. But as soon as you sign your tax return your telling CRA that i understand what is being submitted and accept it to be true.

I'm not sure if you're talking about me but all of my dealings are 100% legit and all taxes are paid. What I'm worried about is getting sued for something that isn't my fault and losing everything I've saved up because it's still in the company books.

A for instance, I worked on a forklift because it didn't have brakes. I pulled the ignition coil wire, removed the floor plates, left the hood open, took out the ignition key, disconnected the battery and told the person in charge that I would be gone for 15 minutes to get parts and no one is to touch the machine. Guess what, when I get back 15 minutes later, the machine has been moved and the idiot drove it into a wall doing damage to his product. Everything was put back into place and a screwdriver was used to start it. Now if the guy had run into a customer, I would most likely be named in the lawsuit and probably assigned some kind of blame because I didn't assign an armed guard to watch the machine.

tiger_handheld, I've talked to my CA about a holding company and he doesn't feel that it would be worth the trouble. He thinks I should buy higher liability insurance coverage, like about 5 million dollars worth :eek:. Lawyers are getting sue-happy and settlements are climbing. I've been thinking about starting up another company and transferring funds from the original into the second to buy and sell used equipment. My original business is licensed as a service related business.

[sexyaccord]

You can write A LOT of shit off. One of my close friends works for his family's company, and leased a 2010 750i. After write-offs, he only pays $6,000/year out of pocket to operate the car. Compare that to joe-blow who purchases it for about $120k AND pays for the massive depreciation.

yeah but does he add the auto benefits used for personal driving on his T4?

120k car is pretty elaborate for any business man, you should ask your friend what his reasons are?
Might not fly with the CRA

he will need to add back a standby charge and an operating benefits to his income. at 120k, the standby is close to 30k on top for his income. Operating benefit excluded, the Federal tax he will need to pay on it is already 4.5k if hes at the lowest tax bracket.

tax free, if he drives it 100% all the time for business purposes though, and leaves the car at the business all the time when not using.
driving from home to work, and work to home is not classified as business related according to the CRA

[jtroung]

I've talked to my CA about a holding company and he doesn't feel that it would be worth the trouble.

Same advice I got, from someone a CGA at CRA actually.

[jtroung]

I write of all conferences/AGMs/Forums/etc...I would go to. Sometimes I would spend an extra few days and write those off as well.

I use: Brown's Income Tax :$$Welcome (http://brownsincometax.com/) Guy's name is Damien. Cool guy who will sit and talk to you for awhile about everything. Gives you tip/pointers on how to write off other things.....Kind of a tit-pervert though. I am will to sacrifice him talking to my chest for a good deal though :)


Well I don't have tits so...

Anyways, thanks for that. Will look into them. I travel and take courses but haven't been writing them off. I still have the receipts. This year's been a good year so I'll likely be writing off the expenses.

thanks for the tips.