Tax rate in Canada for businesses?
I cannot seem to find any information on partnerships/sole proprietorships. Are they taxes more/less than corporations?
- bw022Lv 78 years agoFavorite Answer
If you have a non-incorporated business, sole proprietorship, partnerships, etc. then you are classified as a self-employed individual. You pay the same tax rates as any other person.
You must track your income and expenses and you include the difference as "self-employment income" on your general income tax forms. You also have to remit additional schedules for your business activities. You may have to collect and remit GST. If you earn more than $3,500 a year in self-employment income you must also remit CPP. At the end of the first year, if you owe income taxes, Canada Revenue Agency may require you to remit income taxes quarterly the next year. Self-employed people can deduct a lot of expenses -- vehicles, computer, part of rent, etc. so it is often possible to get your income extremely low.
Personal income tax rates vary based on income. The run from 15% to 29% (federal) plus 4% to 17% provincial depending upon income (topping out in the $150k range).
If you have a company which has been incorporated or limited, then that company keeps track of its own income and expenses and remits corporate income tax returns. Corporate income tax rates are a flat 15% (federal) + (approximately) 4% or 14% provincial -- depending upon income. Companies are taxes on profits -- yearly income minus expenses.
However, if you take money out of a company you own -- that money is considered an expense for the company (and thus not taxes by the company), but you must declare it as income on your personal income tax returns. This would either be salary (if you are set up as an employee of the company), self-employment income (if you are a contractor working for the company), or capital gains (if it is a dividend or the company is buying back shares you might own).Source(s): http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.ht... (Personal Income Tax Rates) http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/rts... (Corporate Tax Rates) http://www.cra-arc.gc.ca/tx/bsnss/sm/ (Self Employment)
- GeorgeLv 68 years ago
Corporations' income tax rates are lower. However, the rates are structured so that when a person takes income out of the corporation the effective tax rate is the same as if it were employment income.
If you take the income as a dividend, it is paid out after the corporation's taxes, and it is taxed at a lower rate in the shareholders' hands in consideration of the corporate tax paid.
If you take the income as salary or management fees, it is fully deductible before taxes, but taxed in your hands as ordinary income.
Minimizing taxes isn't the best reason to run your business through a corporation.
To get the best solution for you, you should talk to an accountant.