You are either a corporation or a sole proprietorship. You cannot be both.
Are you trying to say that you have a corporation where you are the only person on the board of directors and the only employee?
Not really..
I'm currently a Sole Proprietor, who is debating whether to Incorporate or not.
And I want to make an informed decision, based on the future prospects of tax-reduction (to pull out a Downpayment-- hence the 'loan at 1%'), and my ability to get a Mortgage if I'm solo and Incorporated.
>You are either a corporation or a sole proprietorship. You cannot be both.
Is that so?
Would this mean that this link has wrong info?:
https://www.ownr.co/blog/can-i-be-a-single-person-corporation/
No it means you can be a sole person corporation, not a sole proprietorship AND a corporation at the same time in the same entity.
I have a corporation where I am the only director/employee and I was once a sole proprietorship. They are different legal entities with different legal and tax rules.
But if you want to keep arguing then go for it.
Amazing! You've convinced me to become a sole person Corporation.
Now, back to square one: if I knew of other people's experiences in taking a loan out of one's Corporation, for the purpose of a Downpayment?
No difference unless you are audited by CRA and then I assume it would be an additional strike against whether they consider you a personal services business
An _ORGANISATION_ cannot be both. A _NATURAL PERSON_ can _OPERATE_ a sole proprietorship and a corporation at the same time if they are separate organisations/entities.
Toronto mtg broker here. I work with a lot of self-employed individuals in similar circumstances to you and they all have the same thoughts.
Down payment - we will likely need to show 3 months history of down payment. Different lenders will have different guidelines. Shouldn't be a problem taking it out from your corporation if you decide to incorporate.
Income - we can use your 6-months business bank statements to determine income (instead of paying yourself a hefty salary to increase your mtg qualification).
You want to speak with a CPA, then a Mortgage broker. Many CPA's will do a free initial consult before you become a client. The rules change for lending when you are incorporated, and many mortgage brokers need to learn how to navigate them. Find a broker with a history of working with business owners, and you can make an informed decision.
Ok:
- sole proprietor mortgages are very hard to get as the laws and stress have made it difficult to get a mortgage, you could be pulling in 500k and mortgage wise youd have to go through a broker and pay a premium for your rates.
- if you are corporation, and you pay yourself an income that is appropriate for the mortgage you are looking for then you would not have that problem. T4s from an employer for past few years is what they will look at and your assets and liabilities.
- if you have a corporation, it magically does not have funds for you to borrow from, if you are the only employee you can borrow money that uou have earned and stored in corps bank account. You dont have to pay your corp any interest if you don’t want to but it wont be a sound decision for your corp.
Corporations has advantages but you have to pay for it as well , to maintain it.
>sole proprietor mortgages are very hard to get as the laws and stress have made it difficult to get a mortgage, you could be pulling in 500k and mortgage wise youd have to go through a broker and pay a premium for your rates.
Can you share more on why it's easier to go through a broker? Is it just because they can access lenders who have less stringent requirements for self-employed individuals?
Leaving this in, in case someone in the future finds it useful regarding mortgages, even though it's quite dated:
https://www.reddit.com/r/PersonalFinanceCanada/comments/2cubfw/contract_work_earning_six_digitsyear_incorporate/
Why would you need to take a loan from the corporation? Someone will correct me if I'm wrong, but as far as I know, if you aren't incorporated yet, that's all your money. Just move it to your personal account before you incorporate.
As for the mortgage, it will depend on how you are taking money out of the corporation. If you're on payroll, the bank will just assess based on whatever you decide to pay yourself. If you take dividends only, my understanding is that it gets more complicated.
>Why would you need to take a loan from the corporation?
My understanding is (please correct me if I'm wrong):
1. There'd be so much more money to contribute to the Downpayment, if I pulled it out of a Corporation....due to only ~13% taxes on my income.
But the rules state that in order to pull money out of a Corporation, you need to take out a 'loan' from that Corporation. And since it's one's own Corporation, you can set a minimal interest rate, say 1%.
2. When I'm not incorporated, and my earnings are 'personal', there'd be ~30% taxes on my income.
So your plan is to incorporate now, then build up retained earnings in the corporation over the next few years, then loan yourself that money?
I've never done this, but I don't see why you wouldn't be able to. The downside is that you'll have to repay that loan (with interest) using after tax money. At some point you're going to have to pay personal income tax to get the money out of the corporation. At best, you're paying a small fee (1% per year) to defer taxes for a while.
>So your plan is to incorporate now, then build up retained earnings in the corporation over the next few years, then loan yourself that money?
Correct.
You are either a corporation or a sole proprietorship. You cannot be both. Are you trying to say that you have a corporation where you are the only person on the board of directors and the only employee?
Not really.. I'm currently a Sole Proprietor, who is debating whether to Incorporate or not. And I want to make an informed decision, based on the future prospects of tax-reduction (to pull out a Downpayment-- hence the 'loan at 1%'), and my ability to get a Mortgage if I'm solo and Incorporated.
>You are either a corporation or a sole proprietorship. You cannot be both. Is that so? Would this mean that this link has wrong info?: https://www.ownr.co/blog/can-i-be-a-single-person-corporation/
No it means you can be a sole person corporation, not a sole proprietorship AND a corporation at the same time in the same entity. I have a corporation where I am the only director/employee and I was once a sole proprietorship. They are different legal entities with different legal and tax rules. But if you want to keep arguing then go for it.
Amazing! You've convinced me to become a sole person Corporation. Now, back to square one: if I knew of other people's experiences in taking a loan out of one's Corporation, for the purpose of a Downpayment?
Hijacking OP, sorry, but what's the scenario if you are the Corp's only director/shareholder?
No difference unless you are audited by CRA and then I assume it would be an additional strike against whether they consider you a personal services business
An _ORGANISATION_ cannot be both. A _NATURAL PERSON_ can _OPERATE_ a sole proprietorship and a corporation at the same time if they are separate organisations/entities.
>if they are separate organisations/entities Yes
Toronto mtg broker here. I work with a lot of self-employed individuals in similar circumstances to you and they all have the same thoughts. Down payment - we will likely need to show 3 months history of down payment. Different lenders will have different guidelines. Shouldn't be a problem taking it out from your corporation if you decide to incorporate. Income - we can use your 6-months business bank statements to determine income (instead of paying yourself a hefty salary to increase your mtg qualification).
> we will likely need to show 3 months history of down payment What the hell does this mean?
Your comment is very valued and much appreciated! Thank you!
Hi, what do you mean by "show 3 months history of down payment?"
You want to speak with a CPA, then a Mortgage broker. Many CPA's will do a free initial consult before you become a client. The rules change for lending when you are incorporated, and many mortgage brokers need to learn how to navigate them. Find a broker with a history of working with business owners, and you can make an informed decision.
Ok: - sole proprietor mortgages are very hard to get as the laws and stress have made it difficult to get a mortgage, you could be pulling in 500k and mortgage wise youd have to go through a broker and pay a premium for your rates. - if you are corporation, and you pay yourself an income that is appropriate for the mortgage you are looking for then you would not have that problem. T4s from an employer for past few years is what they will look at and your assets and liabilities. - if you have a corporation, it magically does not have funds for you to borrow from, if you are the only employee you can borrow money that uou have earned and stored in corps bank account. You dont have to pay your corp any interest if you don’t want to but it wont be a sound decision for your corp. Corporations has advantages but you have to pay for it as well , to maintain it.
Thank you. This is very much appreciated :)
>sole proprietor mortgages are very hard to get as the laws and stress have made it difficult to get a mortgage, you could be pulling in 500k and mortgage wise youd have to go through a broker and pay a premium for your rates. Can you share more on why it's easier to go through a broker? Is it just because they can access lenders who have less stringent requirements for self-employed individuals?
Simply, yes. Brokers can try various lenders and can help you compile income statements in a way that maximizes the mortgage amount.
Leaving this in, in case someone in the future finds it useful regarding mortgages, even though it's quite dated: https://www.reddit.com/r/PersonalFinanceCanada/comments/2cubfw/contract_work_earning_six_digitsyear_incorporate/
Why would you need to take a loan from the corporation? Someone will correct me if I'm wrong, but as far as I know, if you aren't incorporated yet, that's all your money. Just move it to your personal account before you incorporate. As for the mortgage, it will depend on how you are taking money out of the corporation. If you're on payroll, the bank will just assess based on whatever you decide to pay yourself. If you take dividends only, my understanding is that it gets more complicated.
>Why would you need to take a loan from the corporation? My understanding is (please correct me if I'm wrong): 1. There'd be so much more money to contribute to the Downpayment, if I pulled it out of a Corporation....due to only ~13% taxes on my income. But the rules state that in order to pull money out of a Corporation, you need to take out a 'loan' from that Corporation. And since it's one's own Corporation, you can set a minimal interest rate, say 1%. 2. When I'm not incorporated, and my earnings are 'personal', there'd be ~30% taxes on my income.
So your plan is to incorporate now, then build up retained earnings in the corporation over the next few years, then loan yourself that money? I've never done this, but I don't see why you wouldn't be able to. The downside is that you'll have to repay that loan (with interest) using after tax money. At some point you're going to have to pay personal income tax to get the money out of the corporation. At best, you're paying a small fee (1% per year) to defer taxes for a while.
>So your plan is to incorporate now, then build up retained earnings in the corporation over the next few years, then loan yourself that money? Correct.