Business – Corporate
CRA offers many payment options.
If paying by cheque, make your cheque payable to “Receiver General of Canada” and send it to:
Canada Revenue Agency
PO Box 3800 STN A
Sudbury ON P3A 0C3
Attach a remittance voucher, or else clearly mark on the cheque your SIN or business number (ending RT0001 for HST payments, RP0001 for payroll and RC0001 for corporate taxes) and the period it applies to (year or quarter).
Unless you have over $1.5 million in sales, we recommend registering as an annual filer (as opposed to a quarterly filer) – this will save you administrative work and accounting fees.
You will receive your HST number in about business 10 days.
Note: If you owe over $3,000 in HST for the year, you must make instalments quarterly or monthly. If you do not, CRA will charge you interest on the balance owing.
We recommend you submit completed corporate tax packages to our office within 30 days of your year end.
The tax package has a complete checklist which will help you determine exactly what types of information, documentations or slips you will need to submit.
New clients, please include a copy of your last Notice of Assessment and a copy of your last filed tax return with your package.
If our office will be tallying your receipts, our bookkeeping department would be happy to meet with you to go over what information they’d like to see.
In order for us to do your bookkeeping as efficiently as possible, please submit the following:
- Bank statements for the fiscal year (attach cancelled cheques, but no receipts. Indicate the source of all deposits. For e-transfers, provide the name of the payee.)
- Credit card statements for the fiscal year (but no receipts)
- Cash receipts (if possible, sorted and grouped by expense category, but NOT by month)
The following will slow down the bookkeeping process and therefore increase your accounting costs:
- Paper receipts in multiple currencies
- Paper receipts or that relate to different fiscal years
- Duplicates (aka paper receipts for purchases reflected on a bank or credit card statement)
- Paying personal expenses with a business bank or credit card.
- Set a specific time to pay bills and to empty wallet, pockets or handbag of receipts, and take the time to file both bill statements and receipts.
- Establish one place to store receipts and invest in some organizing tools. A letter-sized accordion file can handle small cash receipts. Label each section appropriately (“Auto”, “Professional Development”, etc.) and file according to category.
- Avoid mixing receipts from different years. Start a fresh collection each year (or corporate year-end, if not December 31).
- If you’ve been traveling for business, avoid mixing currencies.
- Keep personal and business related receipts separately.
- Keep an envelope or small accordion file in the glove compartment of your car to contain fuel, car wash, parking and service receipts. Periodically transfer the contents to your main file.
- Most people remember to ask for a taxicab receipt but if you use public transportation, also remember to ask for a receipt for bus tickets, subway tokens or transit pass. Transfers, though, are not acceptable as receipts. Discard them
- Airline boarding passes are not acceptable as receipts. Keep track of business related entertaining expenses by noting your client’s name and the company or project on the back of the receipt.
- Pet expenses (pet food, veterinary services, etc.) are not allowable expenses except under very special circumstances e.g. you run a security firm and employ trained guard dogs.
- Parking and/or traffic violation tickets are not allowable expenses.
- Credit and debit card receipts often have two parts – the receipt portion showing the item(s) you purchased and the transaction record. To avoid duplicating the amount, staple the two parts together.
The question of whether or not to incorporate can depend on several factors such as limited legal liability, tax planning and circumstances of the services being performed. There are many tips and traps associated with incorporation which should be considered. TIPS
- Deductible business expenses related to a corporation are similar to that enjoyed by a self-employed individual. Similar record keeping responsibilities are also required.
- Limited Liability: A corporation is considered as a separate legal entity and can provide protection to its shareholders and directors from creditors in the event of severe financial issues (ie individual’s assets would not be at risk).
- Tax Planning: Small corporations (CCPCs) in Ontario have a tax rate of 15% (10.5% federal, 4.5% provincial) (as of Sept 2017); the 2017 budget proposes reductions in the federal rate to 10%, effective January 1, 2018, and to 9%, effective January 1, 2019 for all taxable income below $500K per year. Tax savings can be achieved by paying out monies to shareholders as dividends. Income splitting also may provide a tax efficient manner to withdraw funds from the company.
- Job Circumstances: Often productions will only allow you work if you are incorporated. Being self-employed is not an option. They will request on a regular basis your Schedule 50 (List of Shareholders) and the company’s annual Notice of Assessment (indicating that the annual filing has occurred).
- One time cost of incorporation and annual accounting fees can be substantial as compared to personal income tax return preparation fees.
- There are numerous filing requirements such as tax, HST and payroll returns, monthly payroll remittances, instalments, etc.
- Income withdrawn from the company must be reported annually on a T4 (wages) or on a T5 (dividends).
- Any business losses incurred must remain within the corporation and cannot be transferred to an individual.
After considering the above-noted issues, the final decision to incorporate should depend on whether or not you can achieve tax savings. You must assess what your taxable earnings would be after deducting business operating expenses and what you would withdraw as a salary. Net corporate earnings should be a minimum of $ 40K per year. After this point, the advantages of being incorporated begin to rise.
US citizens/green card holders/resident aliens must also consider US tax law. Additional tax planning is required to avoid double taxation and/or a mismatch in foreign tax credits. Please call our office if you are US person who is considering incorporating in Canada.
In order to create your corporation, please provide the following information:
- Contact info: telephone, email, mailing address
- If more than one shareholder: name, SIN, % of company each holds, and if separate classes of shares should be created
- For a named (as opposed to numbered) company, a name search is required: provide three name choices
Please allow our office 2-7 business days to complete your incorporation. You will receive your HST number in about 10 business days.
If submitting your information electronically, please do so using our secure Portal system at https://cchportal.ca/portalthin. Your user name is your email address. If you have forgotten your password, click on “reset”. If you don’t yet have a portal, you can request one at https://brianborts.com/portal-request/
There is some additional paperwork, in that you will need to file an additional annual return (in addition to the corporate tax return) to keep the corporation open. The cost for this additional return is minimal. Should you need to dissolve your corporation, you can do so on-line within few days.
If you incorporate in a certain province or territory, you can only operate your business in that province or territory and your name is only protected in that jurisdiction.
Dissolving a provincially incorporated company is a lengthier and more involved process than dissolving a federal incorporated company.
The articles can allow for one or more classes of shares. Setting up more than one class of shares allows flexibility with paying dividends and assigning voting rights.
There is no limit on the number of classes of shares that can be set out in the articles. If there is more than one class, the rights, privileges, restrictions and conditions for each class must also be specified in the articles.
If there is only one class of shares, those shares must, as a minimum, have:
- the right to vote
- the right to receive dividends (if the board of directors has declared any)
- the right to receive the remaining property of the corporation after it is dissolved
If there are several classes of shares, each of the three rights have to be assigned to at least one class of shares, but one class does not need to have all three. Also, each right can be given to more than one class.
Some of the considerations involved are:
|Effect on corporate tax||An expense to the corporation; reduces corporate tax||Paid out of corporate after-tax income|
|Effect on personal tax||Taxed at employee’s highest marginal rate, but deductions such as RRSP, childcare, etc can help offset||Eligible for dividend tax credit so taxed at a lower rate|
|Note that the combined corporate and personal tax should be considered as a goal may be to minimize the total tax paid.|
|RRSP contributions||Increases RRSP contribution room||Does not increase RRSP contribution room|
|CPP||Allows contributions to CPP||Does not allow contributions to CPP|
|Earned income for child care||Counts as earned income||Does not count as earned income|
|Extra costs and administration||Corporation must pay its share of CPP contributions and remit payroll withholdings to the government||Corporation has no taxes to withhold or contribute|
In practice, the owner/manager may just make withdrawals from the bank during the year, and the classification of the withdrawals as salary or dividends may be made when the year-end statements are prepared. Note that if a salary is paid, payroll remittances should be made through the year (see FAQs under PAYROLL for more information).
- salary payments (bank withdrawals are net income amounts; the gross amounts and related payroll deductions can be calculated from the net amounts)
- dividend payments
- loan to shareholder
- repayment of loan from shareholder
For salary and dividend payments, a tax slip (T4 for salary, T5 for dividends) must be issued by the last day in February.
Loans to shareholder and repayment of loans from shareholder do not require that slips be issued, but will be reflected on the corporate balance sheet.
As a rule, salaries are considered reasonable if they are comparable to an amount that would be paid to an unrelated employee to do the same job.
The recommended practice for paying a family member is to transfer payments to an account in their names (or a joint account), keep a payroll record of salaries, and remit CPP and payroll taxes to CRA. Usually no EI payments are required, however.
Please call or email our office (firstname.lastname@example.org) for help in calculating your remittance payments.
Alternatively, you can use a payroll calculator, such as:
- CRA Payroll Deductions Online Calculator
- Payment Evolution Payroll calculator (More flexible CRA’s calculator, as it allows you to calculate payroll remittances based on net salary, and/or based on a yearly salary.)
Reminder: if you are paying yourself from your own corporation, you will be EI exempt unless you have “opted in.”
Note that minor children are taxed at the highest marginal rate on dividends received from private corporations. This is commonly called the “kiddie tax” and was implemented to discourage income-splitting. This high rate of tax does not apply to spouses or adult children.
- Documentation must include proof of purchase and payment.
- Reasonableness will be evaluated in comparison to total income being reported, comparison to prior years, etc.
- The expense must be incurred to earn income either in the current year or within two to three years.
With all three components, the expense could be claimed as a deduction for tax purposes.
If the corporation purchases a car, the corporation may deduct all reasonable auto expenses. If the car is made available to an employee or shareholder for personal use, that person must include a taxable benefit in his income.
In contrast, if the car is purchased by the individual as an employee, and it is used for business purposes, the corporation can either pay the employee a reasonable allowance (specified by CRA; approximately $0.48 – $0.54 per km) or reimburse the employee for the expenses based on submitted receipts.
In all cases, the employee must keep an auto log to track business use.
Note that insurance is also a consideration as corporate rates are often higher than individual rates. Individual rates can be higher when the car is used for business purposes.
With either option (purchase or lease), all vehicle expenses must be prorated for business purposes and supported with adequate documentation.
For leased vehicles, there will be a monthly lease payment in addition to the operating costs of the vehicle. No depreciation can be claimed as the vehicle is not owned.
When a vehicle is purchased and financed only the interest portion of the loan payment many be deducted and not the principal. Additionally, depreciation may be claimed and is based upon pre-established rates. This non-cash outlay represents the on-going obsolescence of the vehicle.
For federally incorporated companies, the dissolution process can be accomplished on-line by going to the Industry Canada website and following the steps outlined. There is no fee for this service and the process takes 2 or 3 days.
For provincially incorporated companies, you must request a Letter of Consent to Dissolve by calling 1-800-959-5525 and providing your Business Number. CRA is currently experiencing a 10 -14 week delay in issuing this letter.
Once the Letter of Consent To Dissolve has been received, the Articles of Dissolution must be prepared and brought to a Service Ontario office for processing. Please note that the Letter of Consent To Dissolve is only valid for 60 days.
Our office is always available to assist in this process of dissolving your company. Please feel free to contact us to discuss the various issues surrounding dissolutions and to complete the process on your behalf.