Guest column: To be, or not to be? Incorporated, that is

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Having had stellar accounting advice from a very creative and intelligent individual at an early age, I found myself incorporated at the age of 19.  The rewards reaped from this business structure over the past 23 years have been many.  As such, my personal experience shapes the Pro-INC bias of this post and, in particular, for brokers, Realtors and CFPs.

One of the most exciting moments in the process of becoming a mortgage broker was learning that I could incorporate after two years in the business.  Phenomenal, I thought.

Surely every mortgage broker licensed for two years was also incorporated … how could they not be?  Over the years as this topic has come up within groups of long time brokers it never fails to amaze me how few of us are actually incorporated.

But let’s take a look at the pros and cons, shall we?

Arguments against Incorporating:

“It costs (too much) money.”

This is not an argument.  This is an (illogical) excuse.  Anything worth doing in business costs money.  Investments in improving one’s business structure create benefits which, over the long term, greatly outweigh the initial and ongoing costs.

“It takes (too much) time.”

See above.

“My accountant/lawyer/landscaper/buddy/uncle’s-cousin’s-barber’s-brother said not to do it.”

Basing key business decisions on multiple opinions is never a bad idea; basing it on multiple opinions of people who have not actually done the very thing you're asking for their opinion on is a bad idea.  In the case of accountants and lawyers almost all will have, themselves, incorporated.  It is typically more beneficial to focus on the information supplied by people that chose to take a specific action, more so than on those who chose not to take action.

Gather informed opinions.  Ask each one of those people if they, themselves, are incorporated.  Then ask them for their own ‘why’; speak with 5 people who are incorporated and within their 'why' you will find likely find your own motivation.

Ask those who DO. Their knowledge (based in experience) is far more useful than that of those who DO NOT.

For instance: An accountant’s role is largely that of translator of your financial data into the CRA system. The majority of accountants are not, by definition, long-range business planners with knowledge of specific benefits of such strategies as investing in whole life insurance policies within your own corp. in place of personal RRSPs.

Once again I was extremely lucky in life; having had an extremely creative, skilled, and deep thinking accountant as a close family friend. It was his guidance that led me to be incorporated all those years ago, through which I learned the value of retained earnings, carrying losses forward, limited liability, the Smith maneuver, etc.

Although he has since retired, the reins were handed off to the strategic-thinking accountant with whom I work closely today. These are not the easiest guys to find. It is also worth keeping in mind that as with many things in life, you get what you pay for.

Carrying losses forward, income splitting, cleaning up write-offs, and perhaps the single biggest advantage - Corporate Asset Transfer investment strategy are all huge benefits of having inc. status.

Being incorporated is likely the single greatest piece of my own retirement investment strategy.
Bottom line: Be Incorporated!

Dustan Woodhouse is a B.C.-based broker with Dominion Lending Centres.
  • Matt Y on 2014-07-31 11:26:38 AM

    This article would be extremely informative if it illustrated the negative aspects of Incorporating for anyone including a Mortgage Broker. When you start an article with "...But let’s take a look at the pros and cons, shall we?" Then fail to list a single con... Seems incomplete to me.

  • Dustan Woodhouse on 2014-07-31 12:05:19 PM

    Thanks Matt,

    Pretty sure that three cons are outlined;
    1) Additional cost (initial legal and annual accounting)
    2) Time; greater book-keeping and registration burdens
    3) People around me are negative towards the concept.

    That lack of negative aspects is exactly the point of the piece. In the first paragraph tI clear state my bias as I have had nothing but 23 years of positive experiences being Incorporated.

    Being negative is fundamentally difficult towards something that has had such a long term positive impact on my life.

  • rob on 2014-07-31 12:07:29 PM

    its just the usual fluff reporting from mortgagebrokernews.

  • Mitch on 2014-07-31 12:56:40 PM

    Three words...Personal Services Corporation

    Mr. Woodhouse wouldn't many mortgage agents fall under this umbrella?

  • Dustan Woodhouse on 2014-07-31 1:00:13 PM

    I hope this is the answer to your question Mitch; In BC a Mortgage Broker has the option to Incorporate after two years as a registered sub-mortgage broker. The article was written to encourage Brokers with the option to Incorporate to take (another) look at doing so.

  • Layth Matthews on 2014-07-31 1:28:07 PM

    I think this is a great article. Comes from the heart, sharing something that has worked, provocative... I think we should regard these articles as gate openers for discussions where we can share ideas including skepticism, but avoiding cynicism, meaning negativity without a constructive vibe.

    Regarding the article, Dustan, i'm interested in your comment about using whole life inside the company vs. RRSPs. My accountant had me pay myself in Dividends entirely, which avoids CPP but feels kind of exposed because of that. When I asked him about it, he said, "oh you should just buy commercial properties like me"

    Alas, due to the ongoing parade of reckless choices in my life: getting married, having 3 kids, moving from Halifax to Victoria, coffee in the morning, wine in the evening...I haven't managed to acquire any office buildings yet. Which makes me a little nostalgic for CPP. Maybe whole life would be a good alternative. Please say more about how that works.

    On this same point, with a 90% failure rate or whatever it is, and the many others who struggle financially in our profession, I wonder if there is a threshold beyond which incorporation is more practical. Maybe after your self-employment earnings exceed the maximum for CPP. Or is that missing the point?

  • Brian Lambert on 2014-07-31 1:32:46 PM

    If you have a small business let’s say making $100k a year a business with anticipated losses and little legal risk you are far better off as a Sole proprietorship. It is only after
    you are making a more significant income in the 100’s of thousands of dollars and maybe taking on more risk should think of incorporating. I see too many clients that have been given the wrong advice by accountants, telling them to incorporate when they make no money. Now doctors in the $300k - $500K range makes sense to incorporate. An accountant would have you believe that everyone should incorporate. Is it
    benefiting him or you? You mention Whole life insurance. This is the worst type of insurance you can own, it combines a saving portion with life insurance and is very expensive. If you die the life insurance company keeps your savings. If you want to take out your savings you have to borrow your own savings at a high interest rate. Term insurance a pure product is the only insurance you should own, get the most amount for the lowest cost. Being self employed you should take advantage of TFSA’s until you are making enough earnings to invest in RRSP’s.
    Retained earnings, carrying losses forward, limited liability and the Smith Maneuver all can be achieved as a Sole Proprietor. So when should your business incorporate? Keep asking that question until you grow into a different answer. Then take action.

  • Dustan Woodhouse on 2014-07-31 1:47:58 PM

    One must do what works for them.

    I ignored the power of the 'Corporate Asset Transfer' strategy using Whole Life due to my own misunderstandings far too long. It was not until seeing the negative impact on clients having an RRSP' meltdown forced on them at age 71 that I gave it the attention it deserved.

    Incorporation is not 'best' for one profession or another, nor is it 'best' over 300K.

    Incorporating has a host of complicated potential benefits that I will not be outlining in the comments section, but worth exploring with your own trusted advisors. Your Lawyer, Accountant, and CFP for example.

    It may be best at Gross income of 80K if you are living on a 48K salary - as we did for many years.

    I will write additional pieces on the various aspects, they too will be biased op-ed shaped by my personal experience.

    For today, I must stop writing responses to comments and start writing mortgages.

    Have a great day, glad I stirred some thoughts.

  • Alfredo on 2014-07-31 2:48:25 PM

    According to FICOM in BC, you can not incorporate if you are a sub-mortgage broker, Are you sure you you can Incorporate your self in BC as Sub-Mortgage Broker? I would like to Incorporate my self.
    Thanks

  • Dustan Woodhouse on 2014-07-31 3:13:14 PM

    Alfredo, to clarify;

    In BC a Sub Mortgage Broker has the option to step up and become a 'Mortgage Broker' and Incorporate after two years as a registered sub-mortgage broker.

  • Susan Ketler on 2014-07-31 3:44:38 PM

    I took Dustan's article to provoke thought and look into incorporating as part of your own overall business strategy. I don't think Dustan is advocating this as a one-size fits all solution, but rather something that should be considered. And of course before making this decision, you should be consulting a lawyer and professionally designated accountant.

  • Mark on 2014-07-31 3:46:21 PM

    I would like you to clarify whether you are a broker or agent. My understanding is that agents who work for a brokerage cannot incorporate, only those who actually hold a brokers license. If I'm incorrect, please correct me.

  • Alfredo on 2014-07-31 3:50:31 PM

    exactly! I want to be incorporated, however I do not want to be a franchise owner, how can I do that?

  • Dustan Woodhouse on 2014-07-31 3:59:46 PM

    Thanks Susan, you are spot on.

    Mark, in BC you must escalate your standing with FICOM from sub-broker to Broker in order to Inc.

    Alfredo, yours is not a question I am able to answer for in the comments section based on a first name alone. The answer is dependent upon your regulator and brokerage. It is better put to the people you are working with.

    I am not a franchise owner.

    Hope this helps.

  • Samantha Gale, MBABC on 2014-08-01 2:44:20 PM

    If I can clarify some comments here. There are additional regulatory burdens that go with being a mortgage broker, which is what you need to be registered as in BC in order to collect broker earnings into a corporation. The Mortgage Brokers Act review will be getting back on track in this fall - it makes sense to allow submortgage brokers to remain subs (some of them want to work for a DI - broker) and incorporate as a professional mortgage broker corporation - this is how the MBABC will be aiming to have the Act changed on this subject.

  • Riyaz Lakhani on 2016-09-06 5:54:24 PM

    Hi Dustan. Thanx for the information. Its been a couple years since this article. Have any rules changed around Sub Mortgage brokers allowed to incorporate?

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