When it comes to corporate income tax, customers frequently ask us if they should be registered, as self-employed workers, or incorporated, as companies.
It is important to consult a public accountant because corporate taxation is a complex field, and it is in your best interest to understand it well. Several criterias must be considered. Unfortunately, popular culture tends to install false beliefs.
For example, it is often said that companies pay less income tax and that incorporation is therefore better. It is important to understand that the cash assets accumulated by a company are taxed a second time when they are transferred to a shareholder. The combined income tax paid by the company and the shareholder is often equivalent to the tax that a self-employed worker would have paid had he received the money directly.
Another false belief concerns deductible expenses. A vast majority of expenses are deductible at the same level for both for companies and self-employed workers, but a different mechanism is used for each. For example, a self-employed worker must subtract from the expenses related to his vehicle those incurred for personal use, while a shareholder using a company car for personal use will be taxed for this benefit. The Income Tax Act is designed to be equitable for everyone.
However, there are several undeniable advantages related to corporate taxation from which you could benefit.
Do not hesitate to contact your accountant at IMPÔTS ICI ! Taxation & Accounting inc. in order to make sure that you understand all the issues related to corporate income tax before making this kind of decision.