Over the last few years, the Canadian job market has seen a sharp increase in the independent Contracting role in a variety of Canadian sectors. Many individuals seeking employment may not be particularly keen on entering the world of being an independent contractor, but it is difficult to avoid the possibility of a contract position being available or offered to you when seeking new employment opportunities.
There are both short-term and long-term benefits that each opportunity may provide to individuals, but it has been proven that individuals who earn an hourly rate of $45 and over are more inclined to achieve a financially lucrative benefit of an independent contractor role given the significant amount of tax deductions, tax savings, and long-term tax planning strategies available.
Pros and Cons Between an Employee and Incorporated Independent Contractor
These are some of the Pros and Cons between an Employee and Incorporated Independent Contractor:
As an incorporated entity, you are entitled to a variety of expense deductions which are not available to Employees, despite the fact that both roles may incur similar expenses. Every company’s case is unique and that is why reducing your corporate tax payable is an art and not a science. There are significant areas often overlooked by clients when itemizing their out of pocket expenses. Often clients are either unclear or overly conservative in their approach to recording deductible expenditures. At CPA4IT we strive to maximize the available tax deductions for our clients. We are able to reallocate out of pocket expenses to be deemed as a corporate expense and results in significant value added service to the client. This translates to 30% to 40% reduced personal taxable income as a result of claiming these expenses. Documentation is the key to legitimately claiming these expenses, and use of tools like ReceiptBank allows clients to audit proof their books.
Employee vs Incorporation Calculator
We have developed an Employee vs Incorporation calculator tool, which has been designed to let you compare two job opportunities, one permanent and one on contract through a corporation. This calculator will show the total taxes, cost, and overall potential financial benefits for each opportunity
Conduct a Benchmarking Analysis
We have also developed a proprietary tool called our Benchmarking Analysis which allows us to compare your performance metrics to industry averages and industry medians. This benchmark will pinpoint areas that are below average. This will allow us to quickly narrow in and ask relevant questions to determine if you have missed out on valid deductions that you may not be aware off. On the flip side the benchmark will also identify situations where you are above average. Alerting CPA4IT to areas that need greater documentation to ensure that if you are audited, we are prepared to defend these above average deductions.
At CPA4IT, there are also a variety of additional strategies that we utilize for our independent contractors to access money left in their corporation. Our How To Make Incorporation Work For You Guide provides our top 3 strategies such as declaring Dividends, borrowing from the Corporation and investing money left in the corporation.
Although many individuals may value the false sense of security of an Employee position, in many cases the tangible monetary savings that an incorporated business can yield, out ways the core concerns of un-paid vacation and inability to receive employment insurance because you would have achieved much greater financial freedom via your corporation.