OT- Contractor

[Yanni Chiu]

D. Hugh Redelmeier wrote:
> | From: Stephen <stephen-d-bJEeYj9oJeDQT0dZR+AlfA at public.gmane.org>
> 
> | But there is a huge tax advantage to being incorporated.
> 
> One design goal of the Canadian tax system is called "integration".
> The aim is that any way money gets to you, directly, through a
> corporation, or corporations, or trusts, via dividends, salary, or
> distributions, you are supposed to pay roughly the same total tax
> end-to-end.

Yes, it is supposed to be roughly the same, but the devil is in the 
details. On the macro-level it may be the same, but individual cases 
probably will not be a wash. Likely, each individual has to make 
calculations for their actual circumstances, to know whether 
incorporating is better.

As for dividends and "huge tax advantage", a balance is achieved because 
the corporation has already paid corporate tax on the earnings before 
the profits/dividends are distributed. So taxing them at the same rate 
as personal income would amount to double taxation. So it's not the huge 
tax advantage that Stephen-d noted in his posting. Where there is a 
saving is that costs incurred to earn the revenue can be deducted by a 
corporation, but not an individual. This leaves more in the pot, to give 
out in dividends, than would have been accumulated in a non-corporate 
entity. The other advantage is the flexibility to pay dividends in years 
other than when the revenue was earned. So if you have a good year, you 
don't have to take a big tax hit too.

However, this tax advantage comes at the risk of an unsteady revenue 
flow (unlike a steady pay cheque). The extra cost and hassle of 
operating a corporation is real. Whether or not it's worth it can only 
be decided by you and your accountant/bookkeeper.

-- 
Yanni

P.S. To original poster: it's crucial to understand the difference 
between "consulting contract" and "contract employee". Many companies 
that hire consultants don't understand the difference, but it'd be a 
problem for you and that company, if the tax people ever came knocking.
--
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