Business Taxation Q 'n A

Whether to incorporate one’s business depends upon tax and other factors. There are definite advantages and disadvantages depending upon your situation. The primary tax benefit to corporations is the low rate of corporate income tax as compared to the highest marginal rate of tax for individuals. In most cases, the combined federal and provincial income tax rate for active corporations is below 20% for corporate income below $500,000. This compares to top individual rates of 40%-50% for most provinces. If business profits are in excess of personal monetary needs, incorporating one’s business should be considered. Another advantage of a corporation is on eventual sale of that business. Sales of shares in private businesses are in many cases exempt from tax for gains up to $835.716 whereas sales in unincorporated businesses are subject to tax on the first dollar of gain. Non-tax advantages to consider are personal liability issues. Operating a business through a corporation can limit some personal exposure to certain liabilities which are not available to unincorporated businesses. Additionally, some people consider a corporation stronger from a marketing perspective. Disadvantages of incorporating include trapped tax losses which are not available to the owner personally if the company does not perform well, a higher cost for legal and accounting services and more time spent on administration.