If you are self- employed, there are three forms of organization to choose from.
1. SOLE PROPRIETORSHIP (Working for a placement agency)
As a sole proprietor, if you are earning more than $30,000, you are required to register for a business number and charge HST to your clients
Advantages
- Inexpensive to set up (Not required to register a company name)
- Eligible to deduct expenses
- Income split with spouse
Disadvantages
- Unlimited liability
- Income is subject to the personal tax rate
- All income must be distributed - can not leave money in the business
- Must have Dec 31 year-end
2. PARTNERSHIP
In a partnership, if you are earning more than $30000, you are required to register for a business number and charge HST to your clients
Advantages
- Inexpensive to set up – must register business name with a partner
- Eligible to deduct expenses
- Income split with spouse
- No EI premiums
Disadvantages
- Unlimited liability
- Either partner can bind the other
- Income is subject to the personal tax rate
- All income must be distributed - can not leave money in the business
- Must have Dec 31 year-end
3. CORPORATION
Advantages
- Leave money in the corporation and pay only 12.20% on first $500k of taxable income
- Limited liability
- No EI premiums
- Income splitting before and after tax
- Long term savings plan
Disadvantages
- More costly to set up and maintain
