David asked:

If I pay myself a salary, will funds in my business account count as income earned on my personal taxes? What suggestions can you make about setting up a business account from a tax stand point? The business is going to be run in Calgary, Alberta.

Gord Ahier answered:

If your business is run as a sole proprietorship, any income earned in the business would be included on your personal tax return. If your business is incorporated, only the salary or dividends paid to you would be taxed on your personal tax return. The income earned in the corporation would be taxed in the hands of the corporation.

Since the business is going to be run in Alberta, the current corporate tax rate on the first $500,000 of active business income is 14 per cent. Depending on the income earned in the business, there are tax planning advantages of setting up a corporation because of the low corporate tax rate on active business income. This should be discussed with your tax advisor.

About the author

 
Click here to go back to Ask-an-Expert index page.