Are you one of the many IT professionals currently working in the booming tech sector in the Vancouver area? You may be paying too many unnecessary taxes! Here are some helpful tips, courtesy of your Vancouver Chartered Accountants at Mew and Company:
- Determine if you are in fact self-employed under CRA’s definition. The RC4110 guide from CRA is written for laymen and is easy to understand. If you do not meet the definition of “self-employed” using the criteria listed in this guide, but you choose to incorporate anyways, your incorporation falls under the “personal services corporation” definition and the tax benefits of the incorporation will be very limited.
- Determine if your annual billings are high enough to consider incorporation. See our blog “To Incorporate or Not”. Essentially, if your income does not exceed your personal living expenses by a meaningful amount, there are no tax benefits to be gained through incorporation. An incorporated business incurs much higher accounting and legal fees because there are many more filing obligations; the tax benefits need to outweigh the additional costs and obligations.
- If the tax benefits exist to incorporate, then you must decide the type of tax planning you wish to execute. For example, would your spouse be working in the business? Do you wish to do income splitting with the spouse and other members of your family? Also, is there a chance that your business may get bought out for a considerable amount of value in the future? All these possibilities affect the corporate share structure and holdings that the professional accountant devise onset. See our blog “Incorporate Your Medical Practice” for some of the tax planning tools available for corporations. Also, many of our past blogs have discussed the different tax treatments involved with paying dividends versus paying salary to shareholders.
- Once you have incorporated, CRA must be contacted to obtain a Business Number (BN) so that GST can be collected and employees can be paid.
- If the company’s total billings, including GST, are less than $400,000 per annum, consider opting for the Quick Method in calculating your GST to remit to CRA. Most IT consultants have very little expenses and work out of their own home. The taxpayer should come out ahead using the Quick Method instead of the normal method to calculate GST. See our blog “A GST Refresher” for details on the Quick Method.
- Once you are up and running, make sure you do all your filings on time. Incorporation comes with many more filing requirements. Late filing penalties are costly and are not tax deductible.
- Buy bookkeeping software for the business. Quickbooks is the most widely used by businesses and accounting firms. Recently, the online version of the software is now available and backed up to the cloud. Accounting software such as Quickbooks is relatively inexpensive and can save you a lot of time and effort.
Mew and Company is an independent firm of Chartered Accountants, located in downtown Vancouver, B.C. If you have any questions about corporate tax returns or would like to know more about how we can help you, call us at 604 688 9198 or contact us online. We will get back to you within the next business day.
Disclaimer: All Rights Reserved for Mew and Company. This blog post is designed for personal use only. Consult your professional tax advisor for more information. Mew and Company is not responsible for any legal disputes resulting from the content of this blog.