Switching from permanenet IT job to contract
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Posted on: 13-12-09 04:30:36
Reviving this old thread .... the answer to the above is 'Yes' ..... Technically per CRA independent IT contractors should not utilize the small business deductions benefit ( which allow tax rate of 18%) but most of them do as a practice ...
Well here s what happened : I got the contract , worked on it for 9 months ... could not be extended , had to stay out of work for nearly 3 exasperating months .... getting used to contracting .... got a permanent job after that .
If anyone wants more information on incorporation , in the following link , Chandresh has given some excellent information on incorporating ... http://canadiandesi.com/read.php?TID=296&page=1
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Fido.
Folks ,
I was doing a hypothetical comparison b/w a 100K job and a 75/hr contract .... I do not find much difference ........... Am I missing something here ??
Option A ...Full Time with 10% bonus and insurance benefits .
100 + 10 + 5 = 115K less taxes 33% (38K) = 77K ( in hand )
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Option B : Contract @ 75/hr
75/hr : 75*50*49 = 147K .... 3 weeks leave .
less expenses 10K
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137K .. Corporate income
Corp tax @ 18% 25K
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Dividend Available 112K
Per partner (assuming 2 partners ) 56K
IT per partner on 60K income ... with tax on dividend added back taken as 4K .... tax rate 28% -- 16K ??
Take Home 40K
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For both 80K
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A difference of mere 3K . Am I missing some correct calculations ? .. I do agree that the 10K business expense is a benefit ... but am I doing my calculations right ?
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Fido.
Quote:
Originally posted by Fido
Folks ,
I was doing a hypothetical comparison b/w a 100K job and a 75/hr contract .... I do not find much difference ........... Am I missing something here ??
Option A ...Full Time with 10% bonus and insurance benefits .
100 + 10 + 5 = 115K less taxes 33% (38K) = 77K ( in hand )
====================================================================
Option B : Contract @ 75/hr
75/hr : 75*50*49 = 147K .... 3 weeks leave .
less expenses 10K
------------------------------
137K .. Corporate income
Corp tax @ 18% 25K
------------------------------
Dividend Available 112K
Per partner (assuming 2 partners ) 56K
IT per partner on 60K income ... with tax on dividend added back taken as 4K .... tax rate 28% -- 16K ??
Take Home 40K
==============================
For both 80K
==============================
A difference of mere 3K . Am I missing some correct calculations ? .. I do agree that the 10K business expense is a benefit ... but am I doing my calculations right ?
Hi fido,
I am bad at math, but i can give you some benefits fo Option B by @ 60/hr where i actually worked before.
Option B(modified)
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60/hr - approx 120k per annum + 5% GST (6000)
- 126K per annum assuming no overtime hourse :-)
generall by quick method you would pay around 3.5 to 4 % of GST bact to govt where you ended up saving of 1 to 1.5%. that is around $1000(approx)
Total income left on corporation(inc) - 121K
You and Your wife (managed salaries) - 8k(wife) + 12k(husband) = 20K
business expenses around 10k to 15k - you can even stretch to 20k(with some tweeking)
so now you total revenue left on corporation after the above deductions
121k - (20K(managed salary) + 15k (expenses) = 85K approx.
corporation tax = 15,300 rounding 15k
there are some other ways(depends on accountant) to bring down corporation revenue from 85k to close to 50 to 60k and then apply 18% tax to lower the taxes paid close to 10k.
Hence final equation is
you made 121k(after paying 5k GST back to gvt)
personal taxes paid around $0 for wife and $ 2k for yourself = 2k
corporation taxes paid around 15k
total income you have in your pocket is (including both personal and corp) after taxes = 103k - 10k(2 weeks of leave + benefits ) = 93k Net
for 60k ful ltime job after taxes you might get approximately 40k in pocket where as 60/hr will get you 93k in pocket.
around 50k profit.....the above example is approximate but realistic figures.
I cannot conclude as it all depends on the individual circumstances. If one house hold income with the above contract position might not be that lucrative if the contract does not get renewed or some happens to that household(sick)
where as the other partner has a full time and your self going for contract is the best option.
just my 2 cents...btw..dont ask me how to tweek the taxes..lol
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MK
Thanks Mkannauri for the explanation . I wonder how the Accountant lowers the taxable income to 50K ?
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Fido.
hi Fido, what will be the take home for $40/hour and its permanent ? thks
Quote:
Originally posted by Fido
Well here s what happened : I got the contract , worked on it for 9 months ... could not be extended , had to stay out of work for nearly 3 exasperating months .... getting used to contracting .... got a permanent job after that .
If I am not being inquisitive, how was your overall experience with IT contracting? Would you do it again?
Quote:
Originally posted by quest
hi Fido, what will be the take home for $40/hour and its permanent ? thks
Hi , I m no expert on this but please browse for 'income tax rates ontario' and I m sure you will get the Federal & Ontario rates ..... for salary based jobs ...
For contractual its Total - Expenses = Profit - Taxes(18%) = Post Tax available for distribution of dividend .... Once paid out to the directors , they are to pay their personal income tax on it subject to the tax bracket they are in ... Hope this helps b.
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Fido.
