When Should You Incorporate As A CCPC In Canada?
Is Incorporating Right For YOUR Business?
You operate a business as a sole proprietor or a partnership. Is it the right time to incorporate your business as a CCPC?
Keep reading to find the answer ...
I attended an IPBC (Institute of Professional Bookkeepers of Canada) webinar in 2009 by Debi Peverill CA from SBR Communications ... where the topic of when to incorporate as a CCPC was discussed. This is a very brief summary of what I took away from the hour long webinar.
PLEASE TAKE NOTE
This chat gives you TALKING points to DISCUSS with your accountant ...
because incorporation isn't right for every business.
You should only consider incorporation if:
- The business is profitable ... and the profits are sustainable for the foreseeable future.
- The owner can leave profits in the business to take advantage of the lower corporate tax rate ... versus being taxed at a higher personal tax rate if not incorporated.
- The owner wants to sell the business and take advantage of the enhanced capital gain exemption ($800,000 lifetime limit on the sale of qualified shares ... does not apply to the sale of assets). Note that the lifetime limit was $750,000 before 2014 and will be indexed after 2015. The 2015 limit is $813,600 (an index factor of 1.017).
- For protection for significant product liability that cannot be covered through insurance and/or to manage risk ... BUT directors are still personally liable.
- The owner wants to income split with family members by paying dividends ... which can be paid to persons not active with the company ... and which are paid at a lower tax rate than employment income. If the child is under 18, see my references below to "kiddie tax".
The DISADVANTAGES of incorporating:
- Incorporation and annual reporting costs;
- Compliance reporting re annual filings, payroll, etc.; and
- Losses could be trapped in the corporation.
My conclusion after attending the IPBC webinar - if the owner is withdrawing all profits instead of leaving them in the company, there is little advantage or reason to incorporate.
Industry Canada has a chapter in their incorporation guide publication called Chapter 1 - Why Should I Incorporate? if you want to investigate further. You can find it at www.ic.gc.ca under Just for Businesses> Incorporate > > Learn about the benefits of incorporation> scroll to the bottom of the page and click on the link to the Guide to Federal Incorporation.
For information on splitting income with children under 18, see these references about "kiddie tax":CRA website> A to Z Index> Topics for individuals> select the letter D> Deductions and tax credits> Lines 405-485> Line 424 Federal tax on split incomeCRA website> A to Z Index> Topics for individuals> select the letter G> General Income Tax and Benefit Guide ... for the current year> 5000-G General Income Tax and Benefit Guide> Total income ... from the left hand side navigation bar> Split income of a child under 18BDO's February 2011 article Kiddie Tax Extended to Capital Gains
It's been great chatting with you .
Your tutor Lake