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Advantages of IncorporationTRANSCRIPT
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Procom – Contractor EducationAdvantages of Incorporation
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AGENDA
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Good Advice is Priceless
Get a good accountant• That educates you• That asks questions• That you understand• That works with small business
Ask for a referral
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Who We Are
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What We Do
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Why We Do It
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Why Contractors Choose Us?
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Three Primary Forms of Organization
PROP. PARTNER CORP.
Cost to set up Low Low ModerateExpense deductibility Yes Yes YesSeparate Legal Entity? No No YesSeparate Tax Return? No No Yes (2)Financial Statements? No No YesFiscal Year End? Dec 31st Dec 31st Any DateSheltered Liability? No No Yes (*)CPP / Employ. Ins. Both CPP CPPTax Deferral? No No YesDividends No No Yes
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Sole Proprietorship
Pros
Cons
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Partnership
Pros
Cons
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Incorporation
Pros
Cons
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Financial Advantages of Incorporation
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Non-Financial Advantages of Inc.
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Financial Comparison
Sole Proprietor Corporation
40K 43K30K
ContractorEffective tax rate = 14.5 %
=$6,224.
SpouseEffective tax rate = 12%
=$3,612
Corporate Tax:
37K at 15.5%
=$5,735
Total Personal Tax: $21,702Total Corporate
& Personal Tax: $15,571
37K
150K
40K 80K30K
150K
SpouseEffective tax rate = 12%
3612.81
ContractorEffective tax rate = 22.6 %
= $18,090
Expenses Expenses
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Maximizing the Benefits of a Corp
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Decreased ExpensesIncreased Taxes.
Lack of knowledge.
Fear of Revenue Canada.
Poor record keeping.
Don’t Leave Money on the Table
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Maximizing Expenses
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Tools for Maximizing Expenses
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Advertising Vs. Business Promotion
50% of the total spent on meals and entertainment
Rather have customer social events – they’re fully deductible
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You can apply losses made in a business against other income earned
20
When going out for business lunches, dinners, breakfasts write the clients name on the credit card slip
Keep a diary so you don’t have to remember what the expense was related
to
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Advertising Expenses
You can give your employees 2 non-cash gifts per year, tax free for special occasions such as Christmas, Hanukkah, birthdays, marriages etc.
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Motor Vehicle Expenses
• Automobile expenses can be calculated using actual expenses or a mileage rate.
• Automobiles should be purchased/leased under your personal name and the business can reimburse you for its use of the vehicle.
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Home Office Expenses
In order to calculate the amount you can deduct from your tax return you will need to determine the business % of use
•Rent or Mortgage interest •Insurance •Utilities•Property taxes•Maintenance fees
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Books & Periodicals
• Newspapers • Magazines• Subscriptions• Anything you read!
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Education & Seminars
If you can deduct an expense
on your personal tax return it is better to claim it personally and exclude it from your corporate tax return
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Telephone and Internet
• Cell Phone• Internet• Long distance• Secondary lines• You cannot deduct your
primary home telephone line
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Insurance
3 Types from a tax perspective Health, Dental E & O Disability Life
Premiums are deductible as an expense if:
You are incorporated and it’s your primary source of income
You offer coverage to all your permanent full time employeesGet expert advice
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Capital Cost Allowance(CCA)
• You’re allowed you to claim CCA on all business assets
• Ask your accountant what the rates are as they change regularly
• Assets that cost less than $200 can be expensed
• Ensure that you keep an accurate list of all the assets
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Large Assets
When making a large asset purchase consult with your accountant.Timing is important
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Split Income to Save Taxes
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Tax avoidance/planning is legal – using legitimate ways to reduce tax
Incorporating to save taxesIncome tax splitting
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Evasion of tax is breaking the law, falsifying accounting or not declaring income
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Savings $5,391
1 person earns $100,000
Tax Payable = $32,825
2 people earn $50,000 each
Tax Payable = $13767 each
Total Payable = $27,434
Income Splitting
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Accessing Money Left in Your Corp
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What is Personal Service Business (PSB)
Subsection 125(7) of the Income Tax Act offers this definition of "personal services business":
"Personal services business" carried on by a Corporation in a taxation year means a business of providing services where a) an individual who performs services on behalf of the Corporation (in this definition and paragraph 18(1) (p) referred to as an incorporated employee), or b) any person related to the incorporated employee is a specified shareholder of the Corporation and the incorporated employee would reasonably be regarded as an officer or employee of the person or partnership to whom or to which the services were provided but for the existence of the corporation. (Emphasis added.)
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Background of Legislation
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PSB Considerations
Act like a business & be treated like one! Contractor conduct
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Current Situation – CRA PSB Project
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CA4IT PSB Protection
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Next Steps
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Exclusive Offer for Procom Candidates
Our Paralegal Services Include: Our Fee:
• Articles of Incorporation for government approval• HST/Business Number Registration• Initial Return / Form 1• Corporate Bylaws• Preparing:
• Minutes of the organizational director’s meetings*• Minutes of 1st shareholders’ meeting*• Subscription for shares*• The officer and directors’ registers*• Share certificates*
$495.00 (Plus HST)
Other Services Included:Government Filing Fee Included
Name Search Fee Included
Corporate Minute Book & Corporate Seal Included
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Exclusive Offer for Procom Candidates
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Our firm has been dealing with incorporated professionals like you since 1984, no one knows this business better than
us…and we are assertive in our tax policies… we are very good at what we do and we have
served 1000’s of clients!
Phone: 1-800-465-7532 Email: [email protected]
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