Please note that there are significant tax changes being introduced by the government which might make much of what is set out below inaccurate. This page will be revised in due course based on the legislation being introduced.
Is my liability limited once I incorporate?
Yes and no. As a shareholder of a company the only loss you could incur is the loss of the money you paid for your shares. However, you will most likely be the director of the company and will be liable personally, as the director, for all government funds collected such as HST, and source deduction. You will also be responsible for up to six months wages for employees. There is also the potential liability for environmental costs. Finally, as a new company, lenders (banks), suppliers and landlords might ask for your personal guarantee.
What are the tax advantages of incorporating?
corporation is a person who files its own tax return. In Ontario, a Canadian controlled private corporation carrying on active business is taxed a low rate of 15.5% for the first $500,000.00 of profit. As an individual you are taxed on a progressive rate where, currently, at $509,000.00 you are paying approximately 52% in taxes. A simple question to ask yourself is, at the end of the year, do you have funds left over to invest (that are not necessary for day to day living)? If the answer is yes and you have surplus funds of at least $25,000.00 there may be significant tax savings if you incorporate your business depending on your personal tax rate. Further, your spouse could own shares and this allows for income splitting.
How long does a company exist for?
Technically, it could last indefinitely as long as the proper filings are maintained. The Hudson Bay Company was granted its charter in 1670, some two hundred years before confederation, and is today one of Canada’s leading retailers. Although the original shareholders and directors are long gone, the company is still going strong. Incorporating often gives customers and suppliers the sense of permanence. This permanence not only gives a sense of stability but is extremely useful when dealing with subsequent generations of family members in a family business.