Choosing Between Sole Proprietorship & Corporate Status
With the deadline for filing personal income tax returns with Canada Revenue Agency (CRA) now past and business tax returns due on June 15, some sole proprietors and new business owners are likely now wondering whether they should become incorporated. This is a common question asked by business owners when meeting with the accounting and bookkeeping professionals at Canwest Accounting.
Sharlane Bailey, Owner of Canwest Accounting, says it often comes down to answering two key questions.
- What was your net profit last year?
“Once you reach a net profit of $50,000 or more for each partner in the business, it is a good time to look at incorporating,” says Bailey. “Becoming incorporated comes with extra costs and more complicated corporate tax returns, but it can also lower your tax bracket, potentially from paying 35% in tax to 15% in tax.”
- What type of business are you running?
“For some professions, like electricians, plumbers, builders and others, personal liability can be an issue should something go wrong and you are sued,” Bailey states. “If your company is incorporated, you are not personally liable like a sole-proprietor would be and this will protect your family assets.”
She adds that even when incorporated, the government and banks can hold shareholders responsible for any debts owed to them, and most business owners are required to sign a personal guarantee.
Other important tips include meeting with an accountant to go over tax planning to help come to a final decision on whether to incorporate your business and use a lawyer when registering your business as a corporation. It’s important this be done correctly.
The team of accounting experts working at Canwest Accounting’s Victoria and West Shore (Langford) offices are available to answer your tax questions. Call or drop by to make an appointment.
The suggestions and advice provided by Canwest Accounting should not be relied upon in place of professional advice. You are responsible for checking the accuracy of relevant facts and opinions provided.