Many individuals have used this year while on CERB to start up small businesses. First and foremost they should ensure that income and expenses are tracked and ready to report on the T2125 Statement of Business Activities. Those who cross $30,000 in gross sales must also register for an HST number.
Individuals in this situation have the option to incorporate and report their business activity on a T2 Corporate tax return. But who does this option make sense for?
1. In a recent survey by legal protection firm DAS Canada, 31% of small business owners are concerned they will be sued by customers and other parties. Incorporating protects the business owner from being held personally liable in these situations. And even in the event your corporation is sued, it will only be to the level of assets/investment in the company.
2. Those who are comfortable paying tax on their regular income can “store” the major net losses that occur when starting up a business in the corporation, to be applied in later years against it’s net income, reducing tax liability. It’s also worth noting that corporate income tax rates are significantly lower than personal income tax rates at higher levels.
For more help on incorporating a small business, reach out to IDM Professional Corporation CPA.
