Incorporation has its share of advantages and disadvantages.
Tax reduction is one of the main advantages of a well-structured incorporation.
Tax deferral
In Quebec, according to 2024 tax brackets, the business income tax rates are:
- 0.0% to 53.3% for an unincorporated professional
- 13.0 %, 20.50 % or 26.50 % for a company
A substantial difference that can translate into a tax deferral of up to 35.3% if surpluses are kept in the company.
Income splitting
Paying a dividend to members of your family can be advantageous depending on their situation and their income. However, a dividend paid to a family member is generally taxed at the maximum rate, with certain exceptions. The dividend paid will then be taxed at graduated rates.
The main exceptions for family members are as follows:
- Reasonable dividend for work done
- Work of at least 20 hours per week, done throughout the year
- Company owner 65 years of age or older who pays a dividend to his or her spouse.
Other advantages of incorporation
- Transferable property
- Separate and ongoing legal entity
- Limited liability
- Availability of the capital gains deduction
- Payment of life insurance
- Debt repayment for business purposes
In short, incorporating means establishing a company in which to practice your profession. When it is well structured, it can offer you many advantages.
