OT- Contractor

[Christopher Browne]

On Mon, Jun 21, 2010 at 4:29 PM, D. Hugh Redelmeier <hugh-pmF8o41NoarQT0dZR+AlfA at public.gmane.org> 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.
>
> Integration isn't perfect.  It doesn't take into account various
> oddball distortions.  It may not take into account lower tax brackets
> (I don't know).

No, integration normally does NOT account for lower tax brackets - it
has traditionally been targeted at rates at the top tax bracket.  It
would have to be pretty wackily complex in order to cope with lower
tax brackets.

Typically, there's some edgy bits in both directions for the lower tax brackets:
 a) Dividend tax credits are often a "win" for a little while;
 b) On the other hand, employment income is taxed a bit more lightly in lower
     brackets.

Apparently a) is a bigger "win" than the losses for b).

Sometimes, there have been "small business tax credits" that make
income held in the company more lightly taxed, though, when I was in
this area, small companies would very frequently be "not taxable"
(which the newspapers make hay about!) basically because 100% of
income was being drawn out as salaries for the owner/manager.

The bias that pushed them to "take it as employment income" was that
employment income was the basis for future RRSP contribution limits.
It was a better deal to get as much as possible into the RRSP.  If
dividends have gotten drawn into RRSP limits, then that factor has
changed.

> So: there is not supposed to be a tax advantage to being incorporated.
> But that does not mean that theory and practice match.
>
> As far as I know, the US system doesn't have a similar philosophy.

Correct.  The notion of integration is rather strange, a little like
Christian notions of the Trinity, in that it is never actually stated
(e.g. - you never see the word "integration" :-)) in the Holy
Writings.  (Erm, the Income Tax Act...)

http://en.wikipedia.org/wiki/Income_taxes_in_Canada#Integration_of_corporate_and_personal_income_taxes
-- 
http://linuxfinances.info/info/linuxdistributions.html
--
The Toronto Linux Users Group.      Meetings: http://gtalug.org/
TLUG requests: Linux topics, No HTML, wrap text below 80 columns
How to UNSUBSCRIBE: http://gtalug.org/wiki/Mailing_lists