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.

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 corporation.

However, imperfections in the integration system arise primarily as a result of different corporate tax rates applicable on various types and levels of income.

Accordingly, depending on the circumstances and the manner in which a shareholder/manager is remunerated, that individual could be either better or worse off by incorporating.

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 personal tax

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

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.

General

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.

3. What is a good accounting software package?

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.

4. What are the common filing and remittance deadlines?

• Corporate Income Tax Returns
• Payment
  • Taxes are due two months after the fiscal year-end; or for Canadian-controlled private corporations three months after year-end (except Québec).
• Filing
  • Returns must be filed no later than six months after year-end
• Corporation Capital Tax Returns
• Payment
  •    Ontario and Alberta, the deadline is the same as for corporate income tax.
  •    Québec, payment is due two months after the year-end.
  •    All other provinces, payment is due 6 months after year-end.

• Filing
  • 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

Partnership Returns

• 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 Reassessment.
• 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