|From time to time I
recieve several common questions, this section is to answer your
questions. There is no harm in asking and no question that shouldn't
be answered. I will regularly answer your questions and the questions with the
broadest content will be posted in these pages. Here are some recent questions,
click on the hyperlink on the left to read my answers.
1. What is involved in GST registration?
If you are engaged in a commercial activity in Canada, with annual
sales and revenues of GST-taxable goods and services of more than $30,000, you are
required to register for GST. Any individual, business, association, partnership, company,
corporation or organization whose revenues exceed $30,000 has to register. Companies,
corporations and partnerships must register for GST as a whole, based on their total
annual GST-taxable sales and revenues.
- Every seller of goods or services is responsible for charging,
collecting and remitting the GST.
- GST Returns
- Each registrant must file a GST return. The frequency and alternative
filing requirements are set out in the chart below.
Sales and Revenues
|More than $6,000,000
|$6,000,000 or less
|$500,000 or less
||Monthly or Quarterly
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2. Should I incorporate?
For many individuals, a significant factor in deciding to
incorporate is the potential advantage of providing the shareholders with limited
liability where the business is carried on in a corporation.
However, there are also certain tax advantages and disadvantages
that may arise as a result of incorporating a business.
Theoretically, integration should cause the total tax paid on income
earned in a corporation and then distributed to its shareholders to be equal to the total
tax paid by an individual who earned the same income directly and not through a
However, imperfections in the integration system arise primarily as
a result of different corporate tax rates applicable on various types and levels of
Accordingly, depending on the circumstances and the manner in which
a shareholder/manager is remunerated, that individual could be either better or worse off
Advantages of Incorporation
- Tax savings: The 1999 corporate income tax rate on the first
$200,000 of active business income eligible for the Small Business Deduction (SBD) in
Ontario is approximately 22 per cent. Any income in excess of $200,000 will be taxed at a
rate of approximately 43 per cent.
- Because of the Ontario small business deduction surtax or "SBD
clawback," the corporate tax rate for active business income in Ontario can be as
high as approximately 48 per cent. This Ontario surtax will apply to taxable income in the
range of $200,000 to $500,000.
- The top combined federal and Ontario personal income tax rate in
1999, which applies on taxable income of approximately $59,000 and over, is approximately
49 per cent.
- Tax deferral: Tax can be deferred by retaining up to
$200,000 of active business income in the corporation so that it will be taxed at the low
small business rate.
- The difference between the personal marginal income tax rate and the
small business rate results in tax deferral. This will be of interest to individuals whose
business income in their corporation is greater than their own personal cash requirements.
- Another tax deferral technique may be available through the accrual
of a bonus at the corporation's year-end.
- Income splitting: Income splitting may be available in carefully
planned situations by having family members as employees or shareholders and paying these
individuals reasonable salaries or dividends, as appropriate.
- Estate planning: Estate planning advantages may be possible
by issuing shares to children or other family members thereby transferring all or a
portion of the future growth in the corporation to the children or other family members.
- Capital gains exemption: Establishing a corporation may
enhance the ability to claim the $500,000 capital gains exemption on a sale of the shares
of the corporation.
- Other Advantages
- possible limited liability for shareholders
- separation of business and personal activities
- stabilization of income of the individual through salary payments
- flexibility of the timing of the receipt of income subject to
Disadvantages of Incorporation
- Expenses: The expense of forming a corporation and of
complying with the annual requirements for meetings and filing of notices must be weighed
against the advantages of incorporation.
- Federal income tax returns must be filed annually. In addition,
provincial tax returns are also required in certain jurisdictions such as Ontario and
Quebec and these provinces also levy a capital tax on corporations.
- Loss utilization: A corporation may incur start-up losses
that may not be deducted until income is earned in future years.
- For the sole proprietor who carries on business personally, start-up
business losses can be used to offset other personal income.
- Books and records: Separate books and records for the
corporation must be maintained.
Personal funds will need to be separated from the corporation's
funds and withdrawals, such as loans and advances to shareholders from the corporation for
personal use, will be subject to strict provisions in the Income Tax Act and could be
subject to tax or imputed taxable interest benefits.
Investment income does not qualify for the small business deduction.
Such income will be taxed at a rate of approximately 51% in Ontario. However certain
refundable taxes on payment of dividends to individual shareholders could be advantageous
depending on their tax rates.
Generally, the tax savings, if any, or deferral opportunities
associated with incorporation, will outweigh the disadvantages of incorporating. However,
a taxpayer must review carefully the advantages and disadvantages before proceeding.
It is relatively simple to incorporate a business, however, it is
more difficult to reverse that decision and take the business out of the corporation.
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3. What is a good accounting software
Ask someone what accounting software you need and you can bet on
getting ten or more questions in return. The crucial questions to ask yourself are:
- What features do I need in the software? Can I learn to use it
effectively - or is it too complicated?
- Is my hardware and operating system capable of running it, and
potential upgrades to it? Should I consider hardware upgrades?
- Can I afford it? Is it worth the price?
See Resource Center.
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4. What are the common filing and remittance
- Corporate Income Tax Returns
- Taxes are due two months after the fiscal year-end; or for
Canadian-controlled private corporations three months after year-end (except Québec).
- Returns must be filed no later than six months after year-end
- Corporation Capital Tax Returns
- Ontario and Alberta, the deadline is the same as
for corporate income tax.
- Québec, payment is due two months after the
- All other provinces, payment is due 6 months after
- Returns must be filed no later than six months after year-end.
- Personal Tax Returns
- Payment and Filing
- April 30 for Federal and Québec. Certain individuals with
professional income or income from unincorporated businesses have until June 15 to file.
- Trust Income Tax Returns
- Must be filed and paid 90 days after year-end.
- Tax Shelter Information Returns
Returns must be filed before the end of February following the
year the tax-shelter interests were acquired
- If all partners are corporations, the return is due no later
than five months after the year-end.
- If all partners are individuals, the return is due no later than
March 31 of the year following the year-end.
- In any other case, the earlier of the dates mentioned above.
Non-Profit Organizations Information Returns
- Returns are due no later than 6 months after year-end
Information Slips (T3, T4, T5 etc)
- Due the last day of February. If the business activity is
discontinued, the return is due 30 days after discontinuance.
Federal Notice of Objection
- Due 90 days after the mailing date of the Notice of Assessment or
- For individuals and estates one year after the filing due date of the
return or 90 days after the mailing list of the Notice of Assessment or Reassessment;
whichever is the later.
Goods and Services Tax (GST)
- If the return is filed annually: the return and payment are due three
months after the end of the fiscal year.
- If the return is filed monthly or quarterly: the return and payment
are due one month after the end of the reporting period.
Provincial Sales Tax
- In Ontario, PST is due on the 23rd of the month following the
- In Québec, QST is due with the GST return.
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