You just can't beat the small business tax rate. It's one of the biggest reasons we think everyone should have a small business of their own of some sort...
Hey, it’s Tom Karadza with another Rock Star Minute, and I want to get this question right, so I'm going to read it out, we had it from last week as a follow-up. It was, “how about income tax from corporations would you still benefit from corporate tax rates versus personal income tax rates.”
If you start a corporation and if you still have a full-time job, this is a great question and this is why we talk about owning businesses or starting your own side business even in Canada as one of the most effective ways to live life on your terms.
Because the small business tax rate for Canadians right now in Ontario was 15 percent last year. As of January 1, 2018, the federal government reduced it a point and the provincial government reduced theirs half a points worth thirteen and a half percent for this year. And it's going down to twelve and a half percent on January 1, 2019. So, I want to be clear on this. Up until the point that you're earning $500,000, or let me say that the first $500,000 of net income is taxed at that low rate. That's an amazing advantage. That's one of the main reasons we believe everybody should start some business on the side because of the effective tax rates that you're getting. So that's up until the $500,000 of net income. After that, you're taxed at standard corporate tax rates in Canada.
But you could have a multimillion-dollar business and after you deduct expenses, you might be under $500,000 of net income and you're taxed at that low rate. So, it's a huge advantage even if you have a full-time job to start a business. Now, if you're going to deal with corporations for real estate, it gets a little trickier because the government thinks rental income is passive business income and it's taxed differently. And I'm not even going to dive into those waters because I've seen accountants fight over the right answer on this question. So, get a good accountant to talk about using corporations for your real estate and the tax efficiencies around that and how to do it properly.
And we have big news for you this week. We're launching a podcast, it's called The Your Life! Your Terms! Show. We've already completed the first 2 episodes. Actually, we have the first 4 episodes done. The first 2 episodes are released wherever you're watching this. You'll find a link to iTunes where you can subscribe to The Your Life! Your Terms! Show right now. So that's the reason we're starting that, just so you're aware as we want to give longer answers than we could on the Rock Star Minute. So, we're starting a podcast, the first few episodes are already live. We hope you enjoy it. Until next time, your life your terms