# Temporary Contract, Self Employed / incorporate?



## liquidfinance (Jan 28, 2011)

Hi all, after some advise please. 

The wife has been on parental leave and it's almost 100% that she will be offered a package come April when it's time to return to work. As a solution to this she has been in touch with some old colleagues and been offered a temporary contract working from home to try and bolster the funds. However this starts now. 

The downside to this is that she will have to be self employed. 

Now

I can't see it being worthwhile to incorporate but should she? Other contracts she knows have become incorporated. 

Would she need to register for HST? I assume that on the basis of 3 months she would not but if the contract went on for longer then the earnings would be within scope for HST. 

Any advice appreciated

Thanks


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## Spudd (Oct 11, 2011)

She can always start off unregistered for HST and then register later if it looks like her earnings will break 30k for the year. 

No idea about incorporation; sorry.


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## Taraz (Nov 24, 2013)

You can have an HST number even if you don't incorporate (i.e., as a sole proprietorship). If you do choose to incorporate, a numbered corp (i.e., with no actual corporate name or name search) is the cheapest option. You can even do it online.

Things to consider:

-Usually it's more expensive to have an accountant do corporation taxes (since sole proprietorships are counted as "personal taxes"). 
-The government might be more likely to rule you as an "employee" if you're not incorporated (although this can still be an issue when you are incorporated). 
-You have the option of paying out funds as dividends as a corporation (though you have to pay corporate tax first). You often end up paying less tax (and CPP) this way.

Note that either way (as the only shareholder in a corporation or as self-employed) you are EI exempt for your self-employed earnings. Make sure you check off the exempt boxes accordingly, because once you start paying it's a pain to opt out of, and you can't really collect.


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## Just a Guy (Mar 27, 2012)

Basic rule of thumb...

If you make a lot of money, you may want to be incorporated, if you are losing money (on paper or in reality) it's probably better, tax wise, not to incorporate as you can use the losses personally.

Incorporation costs are a lot higher, so it only matters if the savings of doing so make sense. Hire an accountant and talk to them...they're a write off either way. Of course, be careful as they make more money from a corporation...


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## liquidfinance (Jan 28, 2011)

Thanks.

I doubt the income will be high enough to warrant being an inc at the moment. There aren't really any liability issues so no need to have the security of the inc for that. 

My thought is at the moment it would be more of a headache to be an inc.

Sole Prop
HST Registartion
Seperate bank account

Either way it seems you get stuffed for the full liability of CPP payments although you can reduce them through a corp by paying yourself less.


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## heyjude (May 16, 2009)

liquidfinance said:


> Either way it seems you get stuffed for the full liability of CPP payments although you can reduce them through a corp by paying yourself less.


You can reduce CPP payments to zero if you have a corporation that does not pay you a salary. Instead, you take money out of the corporation as dividends. There are other financial advantages of incorporation, such as income splitting and income tax deferral. However, the costs are significant so it only makes sense to incorporate if you can save a significant amount of money in the corporation every year. That is, there are retained earnings after dividends are paid. You can calculate the break even point. When I was making this decision in 2001, the break even point was $60,000 in retained earnings. If that is not likely, then DW should not rush to incorporate. Better to see what her market value is first.


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## Just a Guy (Mar 27, 2012)

If you can avoid HST registration, by not collecting the minimum (as I recall $30k) I'd avoid registering...it's a pain in the butt as you have to report every year...


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## wendi1 (Oct 2, 2013)

The big benefit of incorporation is income deferral. I have one, and it means my income (and income tax) is smoothed out over the years I have big contracts and the years I have none.

You are correct, you have to pay an accountant to do your income taxes every year that the corporation is open. In your wife's case, I think sole proprietor is the way to go. 

The limit for HST registration is 30K revenue in any calendar quarter, and in the last 4 consecutive calendar quarters.
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P369_24434
She needs to have a think about being EI exempt and CPP exempt, though. Is is possible your wife will need parental leave again in the next little while? And while she has to pay both the employee and employer portion of the CPP, is it possible she will need this safety net in the future?


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