Hello all again. I need to know about setting yourself up to contract.
What does one need? A LTD company? Liability Insurance?
How do the taxes work?
What is the BEST way to set yourself up to contract?
Thanks in advance
DH
Setting up to Contract
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iflyforpie
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Re: Setting up to Contract
I only ever did a bit of it and just did it under my name. Got checks paid to my name and did my own tax deductions (which wound up being virtually nothing thanks to lots of education and RRSP claims).
Best thing would be to set up a sole proprietorship either as a numbered company (DBA if you want to) or registering a company name. Incorporating costs a fair bit in legal fees and is a bit more of a headache accounting wise, so probably not necessary unless you plan on going big or having liabilities that might risk you personally (most contracting agencies carry insurance and WCB for subcontractors, but not always and not if you are contracting on your own).
You have to talk to an accountant about taxes, but generally it is best if you can have as many expenses as possible so you can take advantage of lower taxes (write off tools, vehicle, home office, travel, whatever you can) and pay yourself in dividends since the taxes are lower. However, without a salary you don't have CPP, or RRSP deductions. Also if you do salary, you can income split so you and your spouse if you have one can be in lower tax brackets instead of one higher one (hire your kids when they come of age to take advantage of their basic personal amount
).
But like I said, get an accountant and see what fits best for you. Get a lawyer too if you plan on incorporating. Of course, you will have to charge the applicable taxes (GST/PST) to the contracting agency.
Best thing would be to set up a sole proprietorship either as a numbered company (DBA if you want to) or registering a company name. Incorporating costs a fair bit in legal fees and is a bit more of a headache accounting wise, so probably not necessary unless you plan on going big or having liabilities that might risk you personally (most contracting agencies carry insurance and WCB for subcontractors, but not always and not if you are contracting on your own).
You have to talk to an accountant about taxes, but generally it is best if you can have as many expenses as possible so you can take advantage of lower taxes (write off tools, vehicle, home office, travel, whatever you can) and pay yourself in dividends since the taxes are lower. However, without a salary you don't have CPP, or RRSP deductions. Also if you do salary, you can income split so you and your spouse if you have one can be in lower tax brackets instead of one higher one (hire your kids when they come of age to take advantage of their basic personal amount
). But like I said, get an accountant and see what fits best for you. Get a lawyer too if you plan on incorporating. Of course, you will have to charge the applicable taxes (GST/PST) to the contracting agency.
Re: Setting up to Contract
It really depends what you're planning on doing. As pie says, you can either be a sole proprietor or set up a corporation. Sole trader is much simpler, but a corporation provides some protection against people suing you personally, and potentially some tax advantages. It also looks a lot more professional to have "Inc" on your business card.
If you go to an accountant they can set up a corporation and do the taxes. Cost is between $500 and $1000 to set up, plus about the same in accounting fees each year for a simple business. If you're in Calgary I can recommend a good accountant.
Also: paying yourself in dividends isn't necessarily a good idea, as it means you can't make CPP or RRSP contributions. Think carefully before doing that.
If you go to an accountant they can set up a corporation and do the taxes. Cost is between $500 and $1000 to set up, plus about the same in accounting fees each year for a simple business. If you're in Calgary I can recommend a good accountant.
Also: paying yourself in dividends isn't necessarily a good idea, as it means you can't make CPP or RRSP contributions. Think carefully before doing that.
Last edited by CpnCrunch on Fri Aug 30, 2013 9:06 pm, edited 1 time in total.
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GA MX Trainer Dude
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Re: Setting up to Contract
I have done contracts since about 1976 - yup I am an old guy!!!
I set up a sole proprietorship with a registered name - not hard to do but a couple of hoops to jump depending on which province you are in. I made sure I had the word "International" in the name so I would have no problems with working offshore. Also I have the name as a blanket occupation - I instruct, fix aircraft, do course development, industrial photography, and manage real estate all through the same named organization. It doesn't contain any "Aviation" words.
You really need to go to the income tax sites regarding the definitions of contract work - for example AFAIK Revenue Canada will not consider you a contractor if you have only 1 contract for the year that you use solely for your income - even though you are under contract they treat it as if you are an employee - so check it out and be very careful with how you report your income and expenses.
Some companies have a bunch of "Boiler Plate" forms they will want signed - read that stuff very carefully - you can end up working for a daily stipend that has no recourse to any extra payment for extra work that needed to be done in order for you to fulfill you legal obligations of the contract. Be careful with what you sign - especially with "Non-disclosure" clauses - I got caught on that one very early in my career as I could not even go to TC and report gross infractions because that would have been contrary to my signed agreement. In the end all TC did was get a court order to compel my testimony - that way I had no choice but to comply and the company had no legal grounds to come after me for breach of contract.
Just a few of things that might help.
MX
I set up a sole proprietorship with a registered name - not hard to do but a couple of hoops to jump depending on which province you are in. I made sure I had the word "International" in the name so I would have no problems with working offshore. Also I have the name as a blanket occupation - I instruct, fix aircraft, do course development, industrial photography, and manage real estate all through the same named organization. It doesn't contain any "Aviation" words.
You really need to go to the income tax sites regarding the definitions of contract work - for example AFAIK Revenue Canada will not consider you a contractor if you have only 1 contract for the year that you use solely for your income - even though you are under contract they treat it as if you are an employee - so check it out and be very careful with how you report your income and expenses.
Some companies have a bunch of "Boiler Plate" forms they will want signed - read that stuff very carefully - you can end up working for a daily stipend that has no recourse to any extra payment for extra work that needed to be done in order for you to fulfill you legal obligations of the contract. Be careful with what you sign - especially with "Non-disclosure" clauses - I got caught on that one very early in my career as I could not even go to TC and report gross infractions because that would have been contrary to my signed agreement. In the end all TC did was get a court order to compel my testimony - that way I had no choice but to comply and the company had no legal grounds to come after me for breach of contract.
Just a few of things that might help.
MX
Re: Setting up to Contract
I disagree with CpnCrunch about the reasons for incorporation. Incorporation will limit the liability of directors and shareholders, but not in a case such as this. In this case, the AME is also the owner. If something were to happen, a claimant would sue both the corporation and the AME, which in this case, is one and the same. The most important thing when doing contract work is proper insurance. If someone sues you, it is often legal fees that will far exceed any damage award.
As for tax, keep in mind that a corporation is taxed at a lower rate than personal tax, however, whenever you pay yourself you are taxed at the personal rate. Eventually you want to take the money out of your business, not reinvest it, so with a corporation, you are paying both a corporate tax rate and then personal tax rate when you take it out. There are dividend/trust benefits to corporations, but I don't know anything about them. In addition, you have to pay accountant/lawyer's fees every year for an incorporated business. You write off the same stuff.
As for tax, keep in mind that a corporation is taxed at a lower rate than personal tax, however, whenever you pay yourself you are taxed at the personal rate. Eventually you want to take the money out of your business, not reinvest it, so with a corporation, you are paying both a corporate tax rate and then personal tax rate when you take it out. There are dividend/trust benefits to corporations, but I don't know anything about them. In addition, you have to pay accountant/lawyer's fees every year for an incorporated business. You write off the same stuff.
