Business ownership

That answer really depends on the individual circumstances of your business, such as your potential revenues, how many partners you have, and your overall goals as a business owner.                                       

These are the 3 most common business structures in Canada:

• Sole-proprietorship – This is the most common, with the majority of Canadian businesses operating this way. The owner is liable for all financial obligations of the business including taxes.
• Partnership – This entity involves two or more people, with each owner (partner) generally being liable for the financial obligations of the business including taxes. 
• Corporation – A legal entity that remains separate from those who founded it, can allow for business profits to initially be subject to lower rates of tax, and generally shields the owners from personal liability.

To understand which one of these structures makes sense for you, there are three key factors to consider:

• Legal liability — To what extent does the owner(s) need to be insulated from legal liability?
• Tax implications — What are the opportunities to defer or minimize taxes?
• Administrative costs — How much will ongoing record-keeping and paperwork cost the company?
  

While no one can guarantee how the future will unfold, it’s always best to have a solid plan in place so you can avoid potential hassles in your business down the road.                              

Some of the steps you can take, include:

• Business overhead disability insurance — Covers business expenses related to salaries, rent, utilities, taxes, etc.
• Income replacement disability insurance — Covers personal expenses
• Critical illness insurance — A tax-free lump sum that you can use any way you wish.

An IG Wealth Management advisor can help you figure out which options make sense for your business.

While every business has different tax-planning needs, there are a number of ways you can save on taxes for your business:

Employ your spouse or children

Consider paying them a reasonable salary for the services they perform for the business. The money you pay them will likely be taxed at a much lower rate, and it keeps the money in your family.

Incorporate your business

Depending on the level of your current business revenue, and whether your business generates more income than you need for personal lifestyle costs, it may make more sense to incorporate your business.

Profits would be taxed at a much lower corporate tax rate, and you would only be taxed personally for cash you actually need. 

Whereas if you operated as a proprietor or as a partner, you get taxed on all business profits, whether you need all of the income generated or not.

Invest excess cash

The biggest bang for your tax dollar is accomplished by leaving profits in the company.  If paying down debt or reinvesting in the business are not options for you, then a smart investment plan may be the next best thing.

An IG Wealth Management advisor can help you figure out which options make sense for your business.

• Step 1: Determine which business entity you want to set up – Sole proprietorship? Partnership? Corporation?
• Step 2: Register your business with the appropriate provincial (or Federal) authority – This usually requires a business name search, and then registering the business name depending on the type of entity you chose.
• Step 3: Open a business account – You can’t start accepting payments and making money until you open a business bank account

An IG Wealth Management advisor can help you answer all your small-business and big-business questions.