OT- Contractor

Stephen stephen-d-bJEeYj9oJeDQT0dZR+AlfA at public.gmane.org
Tue Jun 22 01:23:24 UTC 2010


On 10-06-21 05:22 PM, John Sellens wrote:
> | Where there is a
> | saving is that costs incurred to earn the revenue can be deducted by a
> | corporation, but not an individual.
>
> Not correct - a business, incorporated or not, can deduct expenses
> incurred to earn the revenue.
>
>    
A corporation can be involved in multiple businesses. Some making a 
profit, some not.

You pay tax on the net. As a proprietor, you have much less flexibility.

Car expenses work much better with a corporation. I am working in 
Waterloo at the moment and drive 900 km a week. My corporation gives me 
a tax free mileage allowance of 52 cents a kilometer, so I get almost 
$500 a week tax free.

My vehicle is almost 8 years old. As a proprietor I would only be able 
to deduct actual costs and without depreciation that would be little 
more than gas. Maybe $150 a week.

> | 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.
>
> Not generally correct - the corporation pays tax on income. When you
> receive dividends, you pay tax on that income and receive (unless things
> have changed in recent years) a dividend tax credit intended to reflect
> the tax paid by the corporation.
>    
With corporations there is no graduated income tax. In a great year, you 
still pay less than 20%. As a proprietor, in a great year you reach a 
marginal rate of over 40%.

I learned this the hard way. In my first year of contracting I made 
$160,000 and the tax bill was very painful. Had I been incorporated I 
would have about $40,000 more in the bank right now.

Stephen
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