Contract Work
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Contract Work
A question for all the AME contractors out there. What can you, and can't you get away with as far as tax write offs go? I'm aspecially interested in info dealing with vehicle, fuel, and home office tax write offs. I've talk to a financial adviser but I'm interested in hearing from someone with first hand knowledge as an AME. Has anyone been through an audit process, what "red flags" should I try to avoid? Thanks!
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Troubleshot
- Rank (9)
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- Joined: Sat May 27, 2006 12:00 pm
Get a GST number...pay your taxes, but claim vehicle, office , computer, tools, lawyer, supplies, training...and so on.
don't claim far fetched items that could land you in hot water with the Fed's ....like say hockey skates or a PS3.
make spread sheets in Excel (or similar) to show where you stand financially, not only is it good for you , it's good to show at tax time to back up your claims if someone asks. Also if you want to expand your business and require loans from the banks , your record keeping will land you the credit way easier.
talk to these people for more info http://www.servicecanada.gc.ca/
P.S. -don't forget liability insurance
don't claim far fetched items that could land you in hot water with the Fed's ....like say hockey skates or a PS3.
make spread sheets in Excel (or similar) to show where you stand financially, not only is it good for you , it's good to show at tax time to back up your claims if someone asks. Also if you want to expand your business and require loans from the banks , your record keeping will land you the credit way easier.
talk to these people for more info http://www.servicecanada.gc.ca/
P.S. -don't forget liability insurance
Troubleshot already covered it well.
I would add that I recommend going with a numbered incorporated company. Your taxes are less than if you are a full timer. Basic rule of finances is, it is not how much you make it is how much money you keep. One benefit of contracting is the amount of things you can buy with pre tax dollars. A big advantage when you get into it. Plus it is nice to get all that GST back with that GST number.
If you do go with a numbered corp. you can always go back to being a full timer and keep the company going with contracting on the side or other business ventures.
The absolutely most important thing is to only listen to your accountant, lawyer and banker. Most important is the accountant! These are the actual knowledgable professionals.
For myself I found that as a couple years went by I started looking at being an AME as business instead of a career. It made quite a difference.
Good luck
I would add that I recommend going with a numbered incorporated company. Your taxes are less than if you are a full timer. Basic rule of finances is, it is not how much you make it is how much money you keep. One benefit of contracting is the amount of things you can buy with pre tax dollars. A big advantage when you get into it. Plus it is nice to get all that GST back with that GST number.
If you do go with a numbered corp. you can always go back to being a full timer and keep the company going with contracting on the side or other business ventures.
The absolutely most important thing is to only listen to your accountant, lawyer and banker. Most important is the accountant! These are the actual knowledgable professionals.
For myself I found that as a couple years went by I started looking at being an AME as business instead of a career. It made quite a difference.
Good luck
My experience has shown that you get all the same benefits (write offs) with a sole proprietorship, less paperwork ie: GST remittance. The only advantage of a # company is the liability. If something goes bad you only lose whats in the company and can be personally protected. Accountants have told me you need to be up above 100,000 annually to get better tax benefits by having a corp, other wise its the same as a sole proprietorship. Just my opinion, but if I had to do it again i would save myself the $300 fee of incorporation and spend it on a good accountant. just my .02
Thanks for the info guys. My accountant also said other then liability there is no real advantage to going inc. over a sole proprietor. Do you guys keep vehicle logs? If not how much do you write off? Same with home office expences, do you write them all off or do you disquinguish between personal and business use?
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Troubleshot
- Rank (9)
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- Joined: Sat May 27, 2006 12:00 pm
A corporation is not taxed at a higher rate than a sole proprietor. I ran the comparison by my accounting firm and they came back with a 18 % tax rate for a corporation and a variable tax rate for a sole proprietor depending on income. The first 10K was tax free and then you get taxed up to a max of 46%. I imagine it may vary from province to province. Depending on what kind of contracts and what kind of income you expect would determine which numbers are better.
However if you plan to ever branch out a corporation can save you thousands. For example if you decide to have your own AMO, rebuild a wreck or two, invest in stocks,funds or real estate etc, then it is best to do this through a corporation. If you acquire assets then you can shield those assets in a corporation. I paid $1200 8 years ago to setup a corporation(I think I got ripped off) and it has saved me that several times over.
Another thing to consider is if you decide contracting is not for you and you want to return to full time employment but you do have investments such as a duplex or rental property, the income from your investments would be added into your full time income which can bump you up a tax bracket. If however you have done your investments through a corporation your investments will not affect your personal income tax rate. You can either draw some income through your corporation as a dividend or leave it in the corporation and invest it further.
Looking at the numbers for sole proprietor it seems like a similar tax rate to a full time position and you dont get any of the benefits of a full time position. Plus you have increased your liability. It all comes down to the individual numbers and ambitions as to which works more favourably,
However if you plan to ever branch out a corporation can save you thousands. For example if you decide to have your own AMO, rebuild a wreck or two, invest in stocks,funds or real estate etc, then it is best to do this through a corporation. If you acquire assets then you can shield those assets in a corporation. I paid $1200 8 years ago to setup a corporation(I think I got ripped off) and it has saved me that several times over.
Another thing to consider is if you decide contracting is not for you and you want to return to full time employment but you do have investments such as a duplex or rental property, the income from your investments would be added into your full time income which can bump you up a tax bracket. If however you have done your investments through a corporation your investments will not affect your personal income tax rate. You can either draw some income through your corporation as a dividend or leave it in the corporation and invest it further.
Looking at the numbers for sole proprietor it seems like a similar tax rate to a full time position and you dont get any of the benefits of a full time position. Plus you have increased your liability. It all comes down to the individual numbers and ambitions as to which works more favourably,
What industry code should I use on my return as there isn't really one that descibes our field. Some interesting points have also been made about incorporation, I'll have to look into it some more. My plan is to take over an existing AMO by aquiring its shares, would an incorporated company be better suited for this? Thanks for the help!
Hi PropDoc,
If I understand you correctly then I would say you do not need a corporation of your own if you are acquiring the shares of another corporation. If you are acquiring all of the shares then you are acquiring that corporation. Therefore no need to spend the money on setting up another corporation. If you are acquiring part of a company that may be more complicated.
The best thing you can do is write out all the questions and scenario's you can think of and then go and explain your plans with a lawyer and accountant. Try to cover all "what if's". Things like acquiring assets, contracts through an agency, direct contracts, the AMO, work between your AMO and another business's, your liability, dividends, wages, spousal wages, insurance etc. Remember Lawyers and accountants are busy and only advise on the information you give them. I have found they do not spend a lot of time considering your "what if's" or future considerations, so it is up to you to go in prepared.
Also depending on when you plan to acquire the shares of the AMO and when you want to begin contract work may make a difference. For example if you want to contract next month but not acquire the shares in the AMO until next year you will want to look into where is best to have your money. If you contract as a sole proprietor for one year and later want to transfer the money you have saved from yourself to your new company, that may be difficult. It is easier to transfer from one corporation to another. A possible scenario you may want to run by your lawyer and accountant.
If I understand you correctly then I would say you do not need a corporation of your own if you are acquiring the shares of another corporation. If you are acquiring all of the shares then you are acquiring that corporation. Therefore no need to spend the money on setting up another corporation. If you are acquiring part of a company that may be more complicated.
The best thing you can do is write out all the questions and scenario's you can think of and then go and explain your plans with a lawyer and accountant. Try to cover all "what if's". Things like acquiring assets, contracts through an agency, direct contracts, the AMO, work between your AMO and another business's, your liability, dividends, wages, spousal wages, insurance etc. Remember Lawyers and accountants are busy and only advise on the information you give them. I have found they do not spend a lot of time considering your "what if's" or future considerations, so it is up to you to go in prepared.
Also depending on when you plan to acquire the shares of the AMO and when you want to begin contract work may make a difference. For example if you want to contract next month but not acquire the shares in the AMO until next year you will want to look into where is best to have your money. If you contract as a sole proprietor for one year and later want to transfer the money you have saved from yourself to your new company, that may be difficult. It is easier to transfer from one corporation to another. A possible scenario you may want to run by your lawyer and accountant.
Thanks Gli77,
Your insight has been helpful. I have spoken with a financial adviser but perhaps not in enough detail. I think if I spoke with ten different people I would get ten different answers. I'm reading three books right now to better educate myself before any decissions are made. It would be much easier if we had a flat income tax rate regardless of income but thats a discussion for another time.
Keep the rubber side down!
Your insight has been helpful. I have spoken with a financial adviser but perhaps not in enough detail. I think if I spoke with ten different people I would get ten different answers. I'm reading three books right now to better educate myself before any decissions are made. It would be much easier if we had a flat income tax rate regardless of income but thats a discussion for another time.
Keep the rubber side down!
i have my own company non aviation related. Here is the best tip you will ever get. Go see an accountant, and don't listen to what anyone on here says, listen to your accountant. He will probably tell you to go with a sole prop, depending on how much you make, make sure your registered with the appropriate agencies, and write off to wazzoo, if it's legal do it, let them audit you, push everything to the limit of the law, you have them by the short ones if you don't break the law. The best way, in bc anyway to write of vehicle for sole prop, is by the KM. .52 cents i think its at, they cannot prove how much you drive, so like i said, take advantage, write it down everyday, where you went for this tool or that, or whatever, even if you didn't go there. Good luck
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youngflier
- Rank 3
- Posts: 100
- Joined: Wed Feb 07, 2007 5:03 pm
Re: Contract Work
my buddy claimed a new kitchen because he said he does alot of parties for potential customers... he says he got away with itpropdoc wrote:A question for all the AME contractors out there. What can you, and can't you get away with as far as tax write offs go? I'm aspecially interested in info dealing with vehicle, fuel, and home office tax write offs. I've talk to a financial adviser but I'm interested in hearing from someone with first hand knowledge as an AME. Has anyone been through an audit process, what "red flags" should I try to avoid? Thanks!
