Helping business owners thrive

That answer really depends on your business’s circumstances, such as your revenue (current and anticipated), how many partners you have and your overall goals as a business owner.                                       

These are the three most common business structures in Canada:

• Sole proprietorship: This is the most common, with most 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. This 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 do you 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?

An IG Wealth Management Advisor can help you decide on the best option for your business. 

While there’s no guarantee of how the future will unfold, it’s always recommended to have a solid plan in place to mitigate problems that your business could face at some point.

Some of the steps you can take include:

• Business overhead disability insurance: This covers business expenses related to salaries, rent, utilities, taxes, etc.
• Income replacement disability insurance: This covers personal living expenses.
• Critical illness insurance: This is a tax-free lump sum that you can use any way you wish.

An IG Wealth Management Advisor can help you figure out which insurance options are best suited to your business.

While every business has different tax-planning needs, there are several 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. 

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

Invest excess cash

You get the biggest bang for your tax dollar by leaving profits in the company. If paying down debt or reinvesting in the business have already been considered, 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: Will it be a sole proprietorship, partnership or 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 bank account: You need this to start accepting and making payments, on your road to earning income.                                                      

An IG Wealth Management advisor can help you answer all your business-ownership-related questions.