| a) | Low
corporate tax rate of 19.12% on the first $200,000 of taxable income (revenues
minus expenses); compared with the top personal tax rate of 46.41%. |
| b) | Flexibility
with respect to remuneration (salaries vs. dividends, as well as being able
to time when salaries and dividends are paid); the incorporated professional can
choose between dividends and salaries. The corporation serves much like a tap
enabling you to time when salaries and dividends are paid to yourself. The optimum
mixture of dividends and salaries will be affected by the following constraints:
| i. | In
order to utilize one's $13,500 RRSP contribution limit, $75,000 of salaries is
required. | | ii. | Generally
speaking, salaries should be paid to the professional in order to reduce the taxable
income of the professional corporation to $200,000. | |
| c) | $500,000
Capital Gains Exemption may be available when you sell the shares of the professional
corporation or if the professional dies (whichever comes first); |
| d) | $10,000
death benefit can be received tax-free by the professional's surviving spouse;
the corporation is able to deduct this amount as an expense in the calculation
of its income; |
| e) | Home
office expenses restrictions appear to apply to individuals, but not corporations; |
| f) | A
non-calendar year end may be used by corporations, thereby enabling the deferral
of income, and hence income taxes; |
| g) | One-time
deferral is available as no tax installments are required during the first
fiscal year of the professional corporation; |
| h) | Tax
deferral is available. An individual in the top tax bracket can defer approximately
$55,000 of taxes by retaining $200,000 of income in the professional corporation
(i.e. $200,000 x (46.41% - 19.12%)). Also, Tax deferral is available since
the professional corporation can receive a tax deduction for services rendered
by the professional to the corporation in one fiscal year while the tax bill of
the individual professional may be deferred until he/she receives the salary or
bonus which could be up to 179 days after the fiscal year end of the professional
corporation; |
| i) | Enhance
your retirement income by using a professional corporation. Specifically,
a professional corporation may make tax-deductible contributions to an individual
pension plan or it may establish a retirement compensation arrangement (RCA).
Contributions to the RCA are subject to a 50% tax which is refundable to the RCA
when it distributes monies to the beneficiaries; |
| j) | No
employment insurance is payable on salaries paid to the professional if the
professional owns more than 40% of the professional corporation. |
