Is it worth it for an Ontario freelancer to be incorporated?
May 14, 2015 12:23 PM Subscribe
About 20 years ago, I needed to set up a corporation to work freelance for a large Ontario film production company. A couple of different accountants over the years advised me to hang on to the corporation and they allocated my yearly salary as a management fee. That paradigm shifted this past year and now I'm wondering if invoicing through an incorporated entity is worth the expense and hassle.
Everything was fine until this last year, when the CRA decided that my spouse and I need to be paid as an employees, requiring monthly payroll deduction remittances.
I'm getting the impression that Ontario production companies seem happy to hire freelancers operating a sole proprietors, so I figure that by getting a personal HST#, I'd save a lot of money on tax preparation (not having to do the business separately from my personal). I'm wondering if anybody has ideas on what the downside of freelancing directly might be.
I work from home, doing storyboards, for generally <100k/year.
Everything was fine until this last year, when the CRA decided that my spouse and I need to be paid as an employees, requiring monthly payroll deduction remittances.
I'm getting the impression that Ontario production companies seem happy to hire freelancers operating a sole proprietors, so I figure that by getting a personal HST#, I'd save a lot of money on tax preparation (not having to do the business separately from my personal). I'm wondering if anybody has ideas on what the downside of freelancing directly might be.
I work from home, doing storyboards, for generally <100k/year.
One of the biggest issues is liability. Depending on how your contracts are structured you can insulate yourself via a corporation in ways that you can't do on your own.
posted by blue_beetle at 1:35 PM on May 14, 2015
posted by blue_beetle at 1:35 PM on May 14, 2015
The two main advantages of incorporating are typically the tax advantages under certain circumstances and the protection of significant business assets like land, trademarks, or a production facility. At this income level (less than $100k), there would be no tax advantage and it sounds like there are no major business assets to protect either in your line of work.
Perhaps protection from liability is a concern, but that risk can be addressed through the right insurance policy, which is sure to be less expensive and administratively burdensome than maintaining a corporate structure.
posted by bkpiano at 5:47 PM on May 14, 2015
Perhaps protection from liability is a concern, but that risk can be addressed through the right insurance policy, which is sure to be less expensive and administratively burdensome than maintaining a corporate structure.
posted by bkpiano at 5:47 PM on May 14, 2015
I've alternated between being a freelancer and owning/co-owning a corporation and drawing an employee's salary for about 20 years in Ontario. I'm currently incorporated and the one and only employee of my company because of a contract opportunity that required incorporation a few years ago.
Incorporation advantages:
1) Being able to carry losses back, which sole props can't do. I had a great year and a scary year a while back, but my accountant confirmed that I could get a chunk of corporate taxes credited back to the company, which meant my scary year ended with a nice little bonus chunk of CRA cash. If your income is at all erratic, this is a real plus.
2) A good accountant can save you money, especially when you're getting started. My current accountant pointed me toward Quick Method for HST, for example, and his annual flat fee covers not just tax filing but always being available to answer questions in person or by phone. I'm dealing with my first American clients this year and my accountant's advice on invoicing and other issues has been great.
3) In my field, at least, I find that more and more clients want to work with someone incorporated.
(OTOH, my accountant, in his rather nice Yonge/Eg office, is and always has been sole prop.)
Incorporation disadvantages:
1) A good accountant costs money each and every year. If your business is fairly simple, you may find that your accountant is no longer pulling rabbits out of the hat year after year, and you may decide to either learn to do your own taxes and financial statements for the company, or you may go back to sole prop.
So if you get some appropriate insurance, expect to continue working steadily, and know for a fact that you won't be losing out on more opportunities than you would like, sure, go back to sole prop. But if your situation is anything like mine (feast and famine years, industry expectations), staying incorporated may be worth the additional expense.
posted by maudlin at 11:47 PM on May 14, 2015
Incorporation advantages:
1) Being able to carry losses back, which sole props can't do. I had a great year and a scary year a while back, but my accountant confirmed that I could get a chunk of corporate taxes credited back to the company, which meant my scary year ended with a nice little bonus chunk of CRA cash. If your income is at all erratic, this is a real plus.
2) A good accountant can save you money, especially when you're getting started. My current accountant pointed me toward Quick Method for HST, for example, and his annual flat fee covers not just tax filing but always being available to answer questions in person or by phone. I'm dealing with my first American clients this year and my accountant's advice on invoicing and other issues has been great.
3) In my field, at least, I find that more and more clients want to work with someone incorporated.
(OTOH, my accountant, in his rather nice Yonge/Eg office, is and always has been sole prop.)
Incorporation disadvantages:
1) A good accountant costs money each and every year. If your business is fairly simple, you may find that your accountant is no longer pulling rabbits out of the hat year after year, and you may decide to either learn to do your own taxes and financial statements for the company, or you may go back to sole prop.
So if you get some appropriate insurance, expect to continue working steadily, and know for a fact that you won't be losing out on more opportunities than you would like, sure, go back to sole prop. But if your situation is anything like mine (feast and famine years, industry expectations), staying incorporated may be worth the additional expense.
posted by maudlin at 11:47 PM on May 14, 2015
Response by poster: Thanks to you both for such informative answers. Liability insurance wasn't something I was aware existed. I had to drop my long time tax service recently and the new accountant's advice was to lose the corporation.
posted by bonobothegreat at 2:33 PM on May 23, 2015
posted by bonobothegreat at 2:33 PM on May 23, 2015
This thread is closed to new comments.
posted by bonobothegreat at 12:25 PM on May 14, 2015