Pros & Cons to Incorporating

Wondering if incorporating is right for you?  Here's are some of the pros & cons to both.

Pros

1. Tax Deferral - Corporations are generally subject to low corporate tax rates on income eligible for the small business deduction.

2. Income Splitting Opportunities - While income-splitting has been significantly restricted over the years, it is still possible to payout dividends or salaries to family members in certain circumstances.

3. Income Flexibility - You can opt to pay yourself a dividend or salary from your corporation (Both have their pros & cons) 

4. Expenses - Certain expenses can be paid for by your corporation instead of from your personal higher taxed dollars.

5. Limited Liability - Personal assets such as your house would not normally be at risk from your corporations creditors.

6. Lifetime Capital Gains Exemption (LCGE) - If you plan to sell your business one day, the LCGE provides tax free capital gains up to $971,190 for 2023

Cons

1. Cost - Maintaining financial and legal records, filing annual corporate tax returns & initial setup costs.

   -Opening a Corp ~$1,000 - $2,000

   -Shareholder Agreement ~$1,000 to $2,000 (If multiple shareholders)

   -Annual Corporate Filings ~$400

   -Annual Tax Filings ~$1,500 - $2,000

2. Profitability - Professionals who are in the early stages of their careers may not yet be profitable and are focusing on paying down debt.  Business losses as a sole proprietor can in some cases be used to offset personal income.

3. Simplicity - If you have a simple business, earn what you need, and are fine with deferring your taxes with RRSP's.

It’s important to seek the advice from your financial, legal and tax advisors before establishing a professional corporation.

If you’re looking for an advisor you can book an intro call with me below.