Canadians earning > $150,000 a year

[Myst]

When you do your taxes, where do you say you get your income from? How much do you normally end up paying in taxes?

[CoreAdult-Dee]

Well, if you do not have a registered company then you would be just considered self-employed. Once you declare this year then the following years you will have to pay your taxes in installments throughout the year based on your previous earnings.

[cali_22]

This is a cash business.

[rickholio]

If you're not incorporated, you're begging to be taken to the cleaners. No Canadian in their right mind would earn over 70k a year without incorporation.

If you're not incorporated, DO IT NOW. You'll still have to take the tax bite (buy an asstonne of RRSPs, the deadline is coming up real soon now!) but you'll be set up right to move forward and grow.

In my case, income comes into the company as a result of consultancy or partnerships. Every penny goes directly into the corporate bank account. I let my accountant handle all of the detail work but the gist is that the gov't doesn't give a fuck where its coming from so long as they get their peice. You can claim any taxes you have to pay overseas and get a credit against canadian tax (to a point).

If you're making $150k a year, there's no excuse to fuck around. Find a lawyer, get incorporated, find an accountant and do it up right. You'll be glad you did.

[Myst]

good stuff
wtf does it mean to be incorporated? (excuse my ignorance, ive never had a "real" job before)
and how much are taxes normally?

[WiredGuy]

Anything in excess of 50k per year I would incorporate for sure. Corporate income taxes are at a much lower rate.

WG

[Quotealex]

Originally Posted by WiredGuy

Corporate income taxes are at a much lower rate.
WG

How is that? You get taxed twice when you incorporate: one as a corporation and the other for your personal income....

[Spunky]

Originally Posted by WiredGuy

Anything in excess of 50k per year I would incorporate for sure. Corporate income taxes are at a much lower rate.

WG

Good advice

[WiredGuy]

Originally Posted by Alex from Montreal

How is that? You get taxed twice when you incorporate: one as a corporation and the other for your personal income....

Corporate taxes up to the first 250k (raised from 200k from last year) are taxed at a the small business deduction rate which is much lower than personal taxes. So while you are taxed from the corporation and personal, you can shelter whatever you don't spend in the corporation at a much lower bracket.

WG

[rickholio]

Incorporation is the process of creating an 'artificial person' in order to empower it to run a business. As a separate legal entity, corporations can shield its directors from legal liability (the Limited Liability Company (LLC) behind some company names), and can survive the death of one or all of its directors and signing officers. Governments also give a great deal of tax incentives and benefits to incorporated businesses... Canada is particularly giving to small businesses.

Probably the single largest benefit of incorporation is the tax situation. Federal tax on the first $200k is 12%, combined with whatever your provincial tax rate is (here in nova scotia, I pay an effective 18.1% up to 250k). As you would likely also be a signing officer and shareholder, you can issue yourself dividends. In Canada, the first $25k in dividends is tax free. If your spouse or other family members are substantially involved in the business they may be eligible to be shareholders as well, giving them access to the same dividend issuing structure. Family business is obviously a good thing to have under these cirucmstances.

Additionally, if you apply for a GST number (or equivalent in areas with blended sale/gst taxes, like here in NS) you can claim a GST refund on business related purchases. Many business related purchases are also directly deductable against business income (ie. you pay no tax on the money you used to buy that new widget for the company). Other purchases (such as computers) allow you to reclaim 100% of the tax paid across a period of years.

Needless to say, business travel can be expensed. That might give you an idea why business tends to get done in very warm, fun, sunny places, usually pool or beachside.

... and certainly not the least concern, if your company performs a service (ie. you do work as a representative of YourCo, LLC) that results in a lawsuit, you're often personally shielded from the resulting litigation. I'm fortunate to not have had to experience this yet, but I'm told by some who have that they would have been ruined by a personal suit in the same situation.

It's generally pretty easy to get a company started. Find a lawyer who specializes in corporate law and get him to set you up. He'll create your minute book and get things underway for you to get your seal, business license, and so forth. Good lawyers will also automatically take care of license renewal and maintaining your minute book to reflect directors resolutions (like issuing dividends to yourself). An average incorporation will run you between $1k-$3k depending on the complexity of the business and the scruples of your legal counsel. You'll also want to get an accountant to make sure your taxes are done up right. Corporations have more scrutiny by CCRA due to the power they wield... don't mess aroun with Lenny from down the block trying to get your year-end to match up with a slide-rule and a #2HB pencil. Your lawyer will almost certainly have good corporate tax specialists that they prefer to work with... easy communication between your professional representatives makes for easier hoop-jumping and, ultimately, less cost.

If you're making that kind of money, you definately owe it to yourself to check it out. Don't linger and hem and haw... it's the difference between an effective 23% tax on earnings (what I did last year) and close to 50% due to so much income in the highest personal brackets.

[Myst]

[Myst]

thanks guys
so how much on average would you pay in taxes if u made 150,000?

[Doctor Dre]

Originally Posted by cali_22

This is a cash business.

RIGHT ... how do you explain all the checks in teh bank for YEARS and YEARS when you get cuaght

[taibo]

canada has taxes?

[gecko]

Originally Posted by taibo

canada has taxes?

and it's usually a lot higher then their counter parts

[stev0]

Find a nice corporate tax free state that suits your needs and incorporate in the US... I'm not sure what exactly the requirements are, but I know a buddy of mine did it with his telemarketing business, and he was a Canadian citizen.

Worth looking into...

[Monk]

Originally Posted by stev0

Find a nice corporate tax free state that suits your needs and incorporate in the US... I'm not sure what exactly the requirements are, but I know a buddy of mine did it with his telemarketing business, and he was a Canadian citizen.

Worth looking into...

don't do this if you are going to continue to live in Canada..... its against the law.

If you are actually going to move out of the country, then its no problem.

[Monk]

Originally Posted by Alex from Montreal

How is that? You get taxed twice when you incorporate: one as a corporation and the other for your personal income....

good point, BUT....

the lower rate means you keep more after-tax dollars in your business in order to re-invest, etc. (say $82 out of $100, instead of $50 out of $100 dollars)

the time value of money.... I would rather pay taxes in 10 years than today.... as those dollars will be worth less in 10 years

with the corporation, you have the ability to draw the income out personally as you see fit. ie. if I was making $300K per year and took it all personally in one year.... I would pay 50%-ish tax on a large portion of it ($230K). However, if you kept this income in the company and paid it out personally beginning in 10 years when you are possibly no longer making this large amount of money.... you could pay out say, $30K per year (if you had NO other personal income) and only pay 20% taxes.

[kaktuz]

good thread , thx alot.

[Trax]

get an accountant
that easy

[Myst]

so on average, how much tax would you end up paying?

[Kevsh]

Yea, we have a lot of taxes up here but our cities aren't decaying, gov't pays for most of health problems and sending a kid to college doesn't cost as much as a 3-bedroom house (at least not yet).

ePassporte is a decent way to "hide" your money, but you didn't hear it from me!

[rickholio]

I don't mind taxes that much. It's the way we pay for civilization.

[RawAlex]

DOn't forget, if you incorporate, you are the shareholder. You can pay yourself with dividends instead of salary, which is taxed at well under 20% rate (although it is not an expense to the company, so the company also pays taxes on it). At the end of the day, you net keep more money that way than almost any other way.

Let the money pile up in the company. Invest some of it wisely, let it grow. Re-invest in your business, purchase property or other businesses, and move forward.

Alex

[Steen2]

Originally Posted by rickholio

... and certainly not the least concern, if your company performs a service (ie. you do work as a representative of YourCo, LLC) that results in a lawsuit, you're often personally shielded from the resulting litigation. I'm fortunate to not have had to experience this yet, but I'm told by some who have that they would have been ruined by a personal suit in the same situation.

Not something I would say on GFY, because the "corporate veil" is a myth.

[V_RocKs]

To the guy who thinks you get double taxed,

Corporations only pay taxes on PROFITS. This is why your tax collector does NOT want you to incorporate. When you pay yourself, that money is NOT taxed to the corporation. Only taxed on you.

So if you buy a 'fleet' vehicle with corp. money you are not taxed on that money (except sales tax of course). If you bought the vehicle as a private person, you would have payed taxes on the money before the car is purchased (or after in theory since we file at the end of the year and are liable at the end of the year). So you will have less money available and therefor, less car too.

As someone said earlier, you can leave unspent money in the corp. or invest in into real estate and not have to pay taxes on it until you sell the real estate. Or take it another step, sell the real estate and then reinvest the money is a more expensive piece of real estate and not have to pay taxes on it (at the sale date of the 1st property).

Now take it another level up... Buy rental property. 4 or 5 units per property. Now you make a profit from the property even though you haven't sold it. Now you will be thinking like a rich person.

Get Rich Dad, Poor Dad. It is a good book to start out thinking like you are rich (and eventually becoming so)...

[V_RocKs]

Also more to think about. If you hire a good accountant and a good attorney, you don't need to worry about the people who say the IRS (or Canadian equivelent) will try to say you are a corporation just to skip on taxes and therefor, illegal. These are the same people who don't download movies from the internet illegally because "you will get caught"... It doesn't happen... Or I should say, it doesn't happen outside of the projects where some dude is a corp and living on food stamps and his disability and is obviously trying to shelter the money...

A good accountant with a responsible reputation will never have to go to court as a witness to your trial.

[Myst]

thanks guys

but please give me a ballpark number..
how much money do you earn and what % of that do u have to pay to taxes?

[Sosa]

go talk to a accountant that can help you out.

[Za Ha]

Originally Posted by Myst

thanks guys
so how much on average would you pay in taxes if u made 150,000?

I think the highest personal tax bracket is 41% (I think that is it in Ontario )

So $150,000 x 0.41 = $61,500 if you have nothing to write off.

[WarChild]

Personally, I'm declaring non residency and moving to Costa Rica.

Effective tax rate for me = 0%.

[WarChild]

Originally Posted by Za Ha

I think the highest personal tax bracket is 41% (I think that is it in Ontario )

So $150,000 x 0.41 = $61,500 if you have nothing to write off.

The highest combined tax rate is 55% in BC I believe.

[blazi]

I think there are still many grey areas online where it's easy for people to profit and not claim capital gain, but that will likely change in the future.

[porn-dog]

Originally Posted by Myst

thanks guys

but please give me a ballpark number..
how much money do you earn and what % of that do u have to pay to taxes?

Everything you need to know is right here http://www.cra-arc.gc.ca/menu-e.html

[porn-dog]

Also remember that if your bank account has large lumps of cash coming in, and no real job on "file" with your financial institution, they will red flag it for review by the CCRA... they are watching.....

[ravo]

Originally Posted by Za Ha

I think the highest personal tax bracket is 41% (I think that is it in Ontario )

So $150,000 x 0.41 = $61,500 if you have nothing to write off.

41% (or whatever the exact number is) is the highest *marginal*, which means you only pay that on the top portion of your taxable income.

It's a sliding scale, something like
first $20,000 - 0%
$20K-$30K - 17%
$30K-$50K - 25%
$50K-$70K - 35%
$70K+ - 41%

(that's just an example; I don't know what the exact brackets and percentages are).

It's been said before, if you're making $150K+, your pissing your money away by not being incorporated. See an accountant and a lawyer.

As for average taex on $150K income: it depends on the individual. The number could be anywhere from $10 to $50K.

[sfera]

good info thanks!

[rickholio]

For the people who foolishly think that all income in Canada gets taxed at 50%, here's a tool to show how much combined provincial and federal tax you'd have to pay based on your province of residence.

Just plug in your yearly income, choose your province, set the year and hit the button. There's also a very handy "quick form" estimator of what your tax burden will be after you plug in a couple numbers on that page (which takes into account dividends, capital gains, deductions and so forth).

Just as an example, if you brought in 150k personal income as a resident of BC, you'd have to pay $50,114.71 (33.41%) combined federal and provincial tax on that income. Quebec is consistantly worse across pretty much the entire income spectrum and gets more and more pronounced at the highest income levels. In this particular scenario, you'd have to pay $59,536.65 (39.69%) on that 150k

Of course, if you bring 150k into personal, you're a damn fool for not incorporating your business and paying the far far lower corporate tax rate.

[rickholio]

Originally Posted by Za Ha

I think the highest personal tax bracket is 41% (I think that is it in Ontario )

So $150,000 x 0.41 = $61,500 if you have nothing to write off.

Originally Posted by Warchild

The highest combined tax rate is 55% in BC I believe.

There's no one "best province" (every province offers different advantages based on your level and composition of income), but generally speaking:

The highest tax rates in Canada, at basically any income, are in Quebec. Manitoba , Saskatchewan and Newfoundland are not far behind.

Alberta, BC and the territories are at the lowest for solid incomes (60k+). Ontario and the atlantic provinces are middle-road.

Is it best to put a car under your corporation? or under you as a person?

and why?

[BlackCrayon]

i grossed a little over 100k last year and paid 9500 in taxes. although i netted slightly less than half the gross after taking every expense i could out of it.

[budz]

Originally Posted by rickholio

it's the difference between an effective 23% tax on earnings (what I did last year) and close to 50% due to so much income in the highest personal brackets.

wow, I wish I would've known that earlier .. .been paying like 35%+ lol :\


good post

[rickholio]

Originally Posted by bdjuf

Is it best to put a car under your corporation? or under you as a person?

and why?

There are advantages to having a corporate vehicle. For one, any expenses in maintaining the vehicle are direct expenses against corporate income. In essense, you get your gas, tune ups, insurance etc "tax free". In my province, my company pays 18.1% combined federal and provincal business tax... so, from one perspective, having a corporate vehicle means getting an effective 18.1% discount on gas, or repairs, etc.

Of course, unless that vehicle is used primarily for business (50% or more), you have to pay a tax on the usage of that vehicle as an individual... what is known as a "taxable benefit". The benefit is derived from the book value of the vehicle WHEN IT WAS PURCHASED BY THE COMPANY, and is paid yearly and prorated by the amount of personal use vs. corporate use (if it's more than 50% personal, you pay 100% of the taxable benefit). Because the initial purchase book value never changes, as time goes by it makes less and less sense to maintain that current vehicle. This is why leasing a car is so popular an option for cdn business: You're going to have to pay the taxable benefit anyways, and it's still not going to end up as 'your personal vehicle' in the end, why not lease?

Having run the numbers, having a vehicle in the business name, even if its intended primarily for personal use, usually pays off in direct expense write-off vs. taxable benefit paid out. Talk to your accountant about the relative benefits of ownership vs. leasing though, as that varies based on the model, your usage, and what your ultimate plans are for the vehicle in question.

[WiredGuy]

Originally Posted by bdjuf

Is it best to put a car under your corporation? or under you as a person?

and why?

I prefer to put it under my company, but at the same time I use the car primarily as a business vehicle (70/30 split). The advantages are first off you get the GST back on the purchase price of the car in one shot (assuming you're GST exempt which you probably should be). So that's like $2500-$4000 back right away. Then, you depreciate the car over the life you keep it (if you bought it) or just manage your lease payments. Because I use the vehicle 30% of the time for personal stuff, I do need to claim that 30% as a personal benefit. Similiarly, gasoline, repairs and insurance need to be pro-rated to account for this split. It's a bit of a hassle accounting wise, but I would only pay 30% of the actual cars value out of my own pocket, and the company pays the remainder. That plus the entire GST back was a great benefit

WG

[phogirl69]

I was wonmdering at how much annual income would you suggest incorporation for a U.S webmaster? (Not canadian) Just a U.S person living in the U.S

[aleck]

Originally Posted by rickholio

Just as an example, if you brought in 150k personal income as a resident of BC, you'd have to pay $50,114.71 (33.41%) combined federal and provincial tax on that income. Quebec is consistantly worse across pretty much the entire income spectrum and gets more and more pronounced at the highest income levels. In this particular scenario, you'd have to pay $59,536.65 (39.69%) on that 150k

isn't it 43.7% for BC and 48.21% for Quebec according to your link?

[qwe]

Originally Posted by rickholio

Incorporation is the process of creating an 'artificial person' in order to empower it to run a business. As a separate legal entity, corporations can shield its directors from legal liability (the Limited Liability Company (LLC) behind some company names), and can survive the death of one or all of its directors and signing officers. Governments also give a great deal of tax incentives and benefits to incorporated businesses... Canada is particularly giving to small businesses.

Probably the single largest benefit of incorporation is the tax situation. Federal tax on the first $200k is 12%, combined with whatever your provincial tax rate is (here in nova scotia, I pay an effective 18.1% up to 250k). As you would likely also be a signing officer and shareholder, you can issue yourself dividends. In Canada, the first $25k in dividends is tax free. If your spouse or other family members are substantially involved in the business they may be eligible to be shareholders as well, giving them access to the same dividend issuing structure. Family business is obviously a good thing to have under these cirucmstances.

Additionally, if you apply for a GST number (or equivalent in areas with blended sale/gst taxes, like here in NS) you can claim a GST refund on business related purchases. Many business related purchases are also directly deductable against business income (ie. you pay no tax on the money you used to buy that new widget for the company). Other purchases (such as computers) allow you to reclaim 100% of the tax paid across a period of years.

Needless to say, business travel can be expensed. That might give you an idea why business tends to get done in very warm, fun, sunny places, usually pool or beachside.

... and certainly not the least concern, if your company performs a service (ie. you do work as a representative of YourCo, LLC) that results in a lawsuit, you're often personally shielded from the resulting litigation. I'm fortunate to not have had to experience this yet, but I'm told by some who have that they would have been ruined by a personal suit in the same situation.

It's generally pretty easy to get a company started. Find a lawyer who specializes in corporate law and get him to set you up. He'll create your minute book and get things underway for you to get your seal, business license, and so forth. Good lawyers will also automatically take care of license renewal and maintaining your minute book to reflect directors resolutions (like issuing dividends to yourself). An average incorporation will run you between $1k-$3k depending on the complexity of the business and the scruples of your legal counsel. You'll also want to get an accountant to make sure your taxes are done up right. Corporations have more scrutiny by CCRA due to the power they wield... don't mess aroun with Lenny from down the block trying to get your year-end to match up with a slide-rule and a #2HB pencil. Your lawyer will almost certainly have good corporate tax specialists that they prefer to work with... easy communication between your professional representatives makes for easier hoop-jumping and, ultimately, less cost.

If you're making that kind of money, you definately owe it to yourself to check it out. Don't linger and hem and haw... it's the difference between an effective 23% tax on earnings (what I did last year) and close to 50% due to so much income in the highest personal brackets.

small and retarded question...

what if my company is NAME INC. instead of NAME LLC. am I personally shielded from lawsuits ? or you only shielded when you NAME LLC. ?

[rickholio]

Originally Posted by aleck

isn't it 43.7% for BC and 48.21% for Quebec according to your link?

That's the highest marginal rates, yes... the effective tax rate is more important though, of course.

Generally speaking, if you're making enough money to be taxed at the highest marginal rate in personal, you should be incorporated... or at least, that's a good rule-of-thumb in canada.

[rickholio]

Originally Posted by qwe

small and retarded question...

what if my company is NAME INC. instead of NAME LLC. am I personally shielded from lawsuits ? or you only shielded when you NAME LLC. ?

This wiki entry gives a pretty good rundown of it all.

[aleck]

Originally Posted by rickholio

That's the highest marginal rates, yes... the effective tax rate is more important though, of course.

Generally speaking, if you're making enough money to be taxed at the highest marginal rate in personal, you should be incorporated... or at least, that's a good rule-of-thumb in canada.

aha, thanks for clearing up. i can't imagine a reason of being non-inc in canada with such high taxes (well, as almost everywhere in fact).