Harlequin007

Currently, I run my own business in the UK. Almost all of my business is what I would call specialist support & professional services to a single company based on the West Coast of the USA (hence one of the reasons for the move). I work from home. We are moving to Vancouver Island in August, I am going via spousal sponsorship and hope to have my CoPR before I leave.

Broadly speaking, the way the system works in the UK is that I pay myself a relatively small wage (below the tax threshold), and then take a dividend out of the company profits (as the Director), after expenses and so on, each year. The dividend is tax free, because the company has to pay corporation tax on the income generated from the contract.

This keeps the tax bill relatively manageable, and certainly better than being self-employed.

My wife has recently joined the business and is starting to work with multiple clients providing personal coaching.

I am planning on continuing this process in Canada - the company that I work with in the States operates as a "virtual business", so realistically I can work from anywhere, this move just makes 10 p.m. meetings less likely

I am not talking about extravagant sums here, I am in the basic rate tax bracket, for example.

My question is does anyone have any experience of setting up and running their own business in Canada, and do they have any idea as to how the two systems compare in terms of whether there is likely to b a big change in actual income, as a result of allowable expenses, GST eligibility, personal tax codes, dividend payments etc. using such a structure.

I have done some basic research and spoken to an accountant briefly, and it seems like the system is similar, but I really just want to try and get a handle from anyone that has actually gone through that and found if the two tax systems result in a markedly different final income.

Cheers

Almost Canadian

They are broadly similar. However, it would appear that you don't really understand what you are doing. For example, shareholders receive dividends, not directors

Jmboot

If he's the sole owner, he holds all the shares.

Siouxie

I would suggest setting up as self employed, simple tax returns (2 extra pages on your personal tax return) and pay your own CPP (9%). You can still offset expenses against your taxes, register for GST/PST/HST (depending on Province) etc.

Steve_

It might make sense to do that in the UK but it doesn't in Canada, it's better to have payroll and pay CPP. The basic principle is the same, i.e. salary is an expense and dividends are not but they've very carefully calibrated the tax system in Canada so you would end up paying the same in corporation tax or CPP. If your income is over the CPP threshold which is something like $52,500 per year then you are definitely better off doing it all through payroll, no question. Below that though you're just giving up CPP to pay corporation tax which is silly.

The very basic principles are the same but other than that they're totally different. Even the tax year is different.

There is a concept in Canada called the Canadian-Controlled Private Corporation which has a much lower corporation tax rate than a regular corporation.

Basically if you want to use a corporation and you're a small business, you set up a CCPC (assuming you're allowed to, some provinces require majority ownership by a PR or Canadian citizen) and then you need a business number and there are a variety of accounts tied to it, the most common ones being corporation tax, payroll tax and GST/HST (the equivalent to VAT).

GST/HST works roughly the same as VAT but rates vary from province to province and some have their own sales tax which is independent.

There isn't anything equivalent to RTI PAYE or stupid complex tax codes like the UK has, it's much simpler, have a read of TD1 which lists them. You work out the tax code from that and it's a rough estimate of their tax, most working people have to file a T1 return and sort out their taxes the following year, the CRA is a bit more trusting than HMRC. The equivalent of a P60 is a T4.

Also there aren't all these weird rates of payroll tax, everyone pays the same, i.e. the employer pays 4.95% and the employee pays 4.95% so 9.9% effectively if you are self-employed up to the $52,500 limit. Self-employed people (which includes CCPCs that you own) are exempt from EI.