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Comment by mmastrac | Hacker News Reader

> paying double tax

That's absolutely not true. In Canada, payroll is deducted as an expense against your corporation's earnings. The money left over in the corporation is taxed at corporate rates, but those are quite low for small businesses.

Also, more expenses are deductible as a corporation which balance out the much higher costs of accounting. And the corporation is one of the few ways of legally splitting income with a spouse in Canada.

For the rest of your comment, I agree that it's not ideal for someone starting out. I think that the bar for starting a personal corp is around $20k/year in side income.

I'm not an accountant, but I have been dealing with corporate taxes with one as a small business owner for ten years.

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Corporate earnings are taxed. Your income is also taxed. That's double tax in my mind.

No, double-tax is when you pay both federal and provincial income tax on the same income. Or when you pay corporate income tax on profits and then pay dividend taxes after that.

EDIT: though as a3camero pointed out, you get tax credits for this later case in Canada, so it's rare to get double-taxed in that case.

> Corporate earnings are taxed. Your income is also taxed. That's double tax in my mind.

No, you are incorrect.

There are basically two ways to draw money from a corporation that you own in Canada: through payroll, or through dividends.

If you draw it through payroll, that money never sees any taxes through the corporation. The only tax burden in the payroll scenario is your personal income tax (same as any other employment income).

If you draw it through dividends, the corporation will pay some tax and you personally will also pay some. However, your personal tax on dividends is less than your personal tax on employment income--the total tax burden is quite similar to what you would pay in taxes if you drew it through payroll, but there can advantages/disadvantages depending on corporate/personal circumstances.

Source: Canadian business owner.

It's relatively straight-forward to keep corporate tax to $0 in situations where it would matter to you as an owner.

As others have pointed out, simply giving yourself a raise will avoid the corp paying taxes.

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