Many independent contractors consider incorporation, but don’t always follow through because of lack of information. To many, the word “incorporation” sounds synonymous with expense and endless red tape.
Incorporation can be easier and less expensive than you imagine, however. Your lawyer and chartered accountant can help you become incorporated for around $1,000 for the simplest form of incorporation (numbered only; no name), and it can take as little as 10 days for the process to be carried out. If your income level is at the minimum threshold, you may qualify for incorporation.
Should I Become Incorporated?
There are many benefits to incorporation but you need all the facts before you can decide if it’s right for you. It is critical to discuss incorporation with your accountant and your lawyer before you make a decision.
Currently, here are some of the key advantages to incorporation:
- You open up more employment opportunities. Some employers will only work with incorporated contractors, as they want to see a commitment to contracting professionally for the foreseeable future. It also spares them involvement with your CPP and EI premiums.
- You can save money on taxes. Depending on your province of residence, as a corporation your tax rate can go down as low as 11%. In contrast, personal income tax rates range from the 30% range to the high 40% range, again depending on where you live.
- Bankruptcy and legal protection. As a corporation, your personal possessions like your home are protected in the event of bankruptcy. You also are protected from many forms of legal action.
- More funding opportunities. Corporations have access to government loans and funding programs not available to individuals. This can be a huge advantage if you ever need to borrow from the corporation, wish to hire employees, or even take advantage of R&D grants to fund new products or other initiatives.
Your accountant will be able to provide you with the full scope of the benefits of incorporation, and make a recommendation as to its suitability for your situation.
Getting Started: Resources
Here are some links to official provincial resources to help you get the information you need:
Some of the resources below will be applicable to provincial as well as federal registration.
- Industry Canada – Incorporate a Business Online
- CRA Online Business Registration – Register your business number, GST/HST number, corporation income tax, and Payroll all at once.
- Register Your GST/HST Account
- The Guide to Federal Incorporation – Foundational knowledge and tools for small businesses who wish to incorporate and operate under federal corporate law.
* Contractors who plan on choosing a name for their company may wish to incorporate federally in order to protect that name. A provincial and a federal company can have the same name as long as the federal company is not operating in your province. If they set up operations in your province at any time, the federally incorporated entity is entitled to use the name.
- Canada Business Network (with menu to select regional service centres).
While it is possible to file the paperwork and go through the incorporation process without the help of a lawyer, Donna Cona recommends you hire one to ensure you have their guidance for your own protection.