1. Limited Liability
A corporation is a separate legal and tax entity from it’s owners. Therefore the liabilities of the corporation are not those of the owner except for certain items such as HST and payroll withholding taxes. An article by our lawyer on this page will explain this more.
One sure way of securing your business name is to incorporate it. As a proprietor or partnership you can register a name with the provincial government but it will not be secure. Incorporation secures it.
3. Current taxation
The corporate tax rate in B.C. for small business is below 16%. This compares with a personal tax rate that can top out at above 50%. Therefore if you are making money and want to keep some in your business then leaving it in a corporation and being taxed at the lower rate makes sense.
4. Audit proof
A corporation brings a discipline that assists the owner to become audit proof. If the corporate financial statements and corporate tax return are prepared by a qualified accountant then the chances of a corporate audit are much lower than that of a proprietor. The owner goes on a payroll and files his taxes with T-4 income. He therefore becomes invisible to Canada Revenue.
5. Capital gains exemption
The owner of a business at some point in time may want to sell his business. The sale of the business might create a capital gain for the original owner. If the business is a proprietor or a partnership then this gain will be taxed to the seller at his marginal tax rate which may be over 50%. If it is how ever he owns a small corporation and the owner sells the shares of the company. There will be a capital gain but each tax payer has a lifelong capital gain exemption of $ 750,000. Therefore no tax