incorporating questions - time sensitive

[c-kat]

Hello,

My husband lost his job in a reorg at work last month and has been interviewing for new positions at various places. He just interviewed for a consultant job and would have to be incorporated in order to be eligible, so if he's interested, we'd have to incorporate this week.  We found a lawyer who will do this for us, but he can't answer any tax/financial questions. I was hoping someone here might have some insight.I have a LOT of questions:

What is the difference between incorporating in Ontario vs Federal?  Another consultant we know at the same place recommended Federal but couldn't explain why.  Are the tax rates different for ontario vs. federally registered corporations?

How do shares work? Should my husband be giving me some?

We don't want to get into dividends but would love the 15% tax rate. How would we be eligible for this? This full time contract would be his only one for now, but we would work on a website and try to get some other clients.

If I hire his company to do some IT support for my small business, would this be eligible?

Can he still contribute to CPP and EI?  And if so, is it recommended?

Thanks!

[KMMK]

Hello,

My husband lost his job in a reorg at work last month and has been interviewing for new positions at various places. He just interviewed for a consultant job and would have to be incorporated in order to be eligible, so if he's interested, we'd have to incorporate this week.  We found a lawyer who will do this for us, but he can't answer any tax/financial questions. I was hoping someone here might have some insight.I have a LOT of questions:

What is the difference between incorporating in Ontario vs Federal?  Another consultant we know at the same place recommended Federal but couldn't explain why.  Are the tax rates different for ontario vs. federally registered corporations?

How do shares work? Should my husband be giving me some?

We don't want to get into dividends but would love the 15% tax rate. How would we be eligible for this? This full time contract would be his only one for now, but we would work on a website and try to get some other clients.

If I hire his company to do some IT support for my small business, would this be eligible?

Can he still contribute to CPP and EI?  And if so, is it recommended?

Thanks!

You should really find a CPA in your area. A lot of us here, myself included, can give you some information, but it's not necessarily as accurate as you want your advice to be. I'd definitely want a professional involved, especially with the time crunch there isn't a lot of time for doing your own research.

[Sisko]

I'm not an expert at all, but have run a small corporation for 5 years or so.

We found a lawyer who will do this for us, but he can't answer any tax/financial questions.

Having a good accountant is way more important than having a lawyer for incorporating. The legal stuff is totally boilerplate.

What is the difference between incorporating in Ontario vs Federal?

Mostly name protection, I believe. Federal has better name protection. I incorporated provincially (BC) because it was a bit cheaper and simpler, IIRC. Probably doesn't make much difference one way or the other though.

How do shares work? Should my husband be giving me some?

It used to be the case that you each would want a different class of dividend paying shares, so that you could pay out one or the other different amount of dividends. Not sure how this has changed recently - this relates to "income sprinkling" which they were trying to get rid of.

We don't want to get into dividends but would love the 15% tax rate. How would we be eligible for this?

I guess you're referring to the small business tax rate? Unfortunately there is no free lunch here. Two options here - he pays himself salary or dividends. If he pays himself salary, the company gets to expense the salary - so the company doesn't pay tax but he pays normal income tax. If he pays himself dividends, then the company gets to pay the small business rate (~15%), then he pays personal tax on the dividends at the ineligible dividend rate (which is a lower rate than normal income). But it works out to be about the same amount of tax - they call it "tax integration". By the time you get the money out of the company he'll have paid about the same amount in taxes.

If I hire his company to do some IT support for my small business, would this be eligible?

It would be the same as any other income/expenses. There might be some arms length rules, I'm not sure. It would only be beneficial if you make more money than him... because you would be transferring income from yourself to him. But again, there is no reduced 15% tax rate.

Can he still contribute to CPP and EI?

If he pays himself a salary then he has to pay into CPP. He can opt in to paying EI, I believe. I don't pay EI, doesn't make a lot of sense when you work for yourself. Definitely saved me a lot of money over the years.
If he pays himself dividends instead of salary, then he doesn't pay into CPP.
Whether or not paying into CPP is a good thing is debatable. If you're on these forums, then I think investing the money yourself is likely to yield better returns. However, CPP is a pretty safe investment for the later years in your life.

But... you really need an accountant to answer all these questions properly :(.