- Advantages: Pays much less taxes than a fixed employee but needs to have long term investment thesis. 13% compared to 55% as employee.
- Use Player to Build contracts: https://www.deel.com/
If you act as a contraktor through your own incorporated company in Toronto, Ontario, your tax obligations will depend on both corporate tax rates and personal tax rates if you take income from your company. Here's an overview:
1. Corporate Tax Rates (2024):
For contractors operating through a Canadian-Controlled Private Corporation (CCPC), the tax rate on active business income is:
- Small Business Rate (up to CAD 500,000 of active business income):
- Federal: 9%
- Ontario: 3.2%
- Total Small Business Tax Rate: 12.2%
- General Corporate Rate (income over CAD 500,000):
- Federal: 15%
- Ontario: 11.5%
- Total General Corporate Tax Rate: 26.5%
2. Personal Tax Rates:
If you withdraw money from your company (for example, through salary or dividends), personal income tax will apply:
- Salary: Subject to personal income tax rates, which range from 20.05% to 53.53% depending on your income level.
- Dividends: Eligible dividends are taxed at a lower rate (ranging from 8.89% to 39.34% in Ontario).
3. Harmonized Sales Tax (HST):
- In Ontario, you’ll need to charge 13% HST on your invoices if your company earns more than CAD 30,000 annually.
Effective Tax Example:
- Corporate income (if your business income is under CAD 500,000) would be taxed at 12.2%.
- If you take dividends, you'll pay additional personal tax on that amount depending on your personal income bracket.
To minimize taxes, many contractors balance retained earnings, salary, and dividends to optimize their tax burden. It's advisable to consult with a tax professional to structure this effectively.
Reducing Taxes Further
To optimize your tax liability:
- Pay Yourself Through Dividends: Avoid CPP contributions by taking dividends instead of a salary.
- Set Up an RRSP or TFSA: Defer personal taxes by contributing to registered accounts.
- Claim Business Expenses: Deduct allowable business expenses, including home office, travel, and professional fees.
- Consult a Tax Professional: A Canadian tax advisor can structure your income efficiently.
Step by Step to Open a Company:
Here are the steps for setting up as an incorporated contractor in Ontario with links to the necessary websites:
Dashboard >>> service.canada.ca
BDC.ca Starting a business - Articles and tools
1. Get Your Social Insurance Number (SIN)
- Apply Online: Service Canada - Social Insurance Number
- Find a Service Canada Location: Find a Service Canada Office
1. Open a Federal Corporation
Federal Corporation
- Check Name Availability: NUANS Name Search
- Incorporate Federally: Corporations Canada - Federal Incorporation
- Incorporate Provincially in Ontario: Ontario Business Registry
Treasury Board of Canada Secretariat Sign in to a Government of Canada online account
2. Register Your Corporation
Canada Revenue Agency How to register your business online
Canada Revenue Agency Business Registration Online – What you will need
If non resident and Online does not work (Online has a delay Data Base reflection which could take a week to reflect the SIN in Federal Systems)
open a Corp via Canada Revenue Agency RC1 Request for a Business Number and Certain Program Accounts
Are you kidding me? The process to open and get a Business Number is via FAX…OMG
- After BIN register in OCI
- Government of Ontario, Ministry of Government Services ServiceOntario - Government of Ontario, Canada
3. Register for a Business Number (BN) and CRA Accounts (just after 1 year of work or after the tax period)
Pay and declare taxes…Just after 1 year.
Fill the taxes and pay after 1 year.
Just after you issue HST for your employee you can open an CRA account.
- CRA Business Registration Online (BRO): CRA - Register a Business
- CRA Contact for Registration: Call 1-800-959-5525 for assistance.
Canada Revenue Agency Digital services for Businesses
4. Set Up a Business Bank Account
- Visit the website of major Canadian banks to set up a business account:
- RBC Business Banking
- TD Business Banking
- Scotiabank Business Banking
- BMO Business Banking
- CIBC Business Banking
5. Obtain Necessary Licenses and Permits
Innovation, Science and Economic Development Canada Registering a corporation
- A company key is similar to the Personal Identification Number (PIN)
- Check specific industry requirements: ServiceOntario - Licenses and Permits
6. Purchase Business Insurance
- Compare insurance options:
7. Set Up Your Accounting System
- Consider using accounting software:
- QuickBooks
- Xero
- Wave
8. File Corporate Taxes
- Learn about filing taxes: CRA - Filing T2 Corporate Income Tax Return
- Find forms: T2 Forms and Guides
9. Independent Contractor Compliance
- Review your contracts to ensure compliance: Ontario Employment Standards Act
Plan B - Ontario Support and Hacks (registre na Provincia apenas se nao quiser nivel Federal)
ontario.ca Start a business in Ontario
ontario.ca Small Business Enterprise Centre locations
After having a BIN register in Ontario Services - www.appmybizaccount.gov.on.ca
Procom to act via consultings
veronique Toronto - Talent Acquisition and Contingent Workforce Management | Procom | Locations
veronique Deloitte contractors - Talent Acquisition and Contingent Workforce Management | Procom |
Taxes & Expenses
Plans & Pricing | Compare Features | QuickBooks Canada
Canada Business Corporations
Corporations governed by the Canada Business Corporations Act or the Canada Not-for-profit Corporations (good to fund raise and hire in Summer) Banks with Interact…
