Business is like people: there’s a birth, stages of growth and a death. Our job is to guide all businesses through these stages in hopes that death is never an option.
You may hear certain terms and lingo throughout your business life and we are here to translate some basic terms for you.
Unlike a Sole Proprietor, when you Incorporate, you are not your business. You have “given birth to a child” and that child has its own identity. You are just the Parent. Your job as a parent is to ensure its growth and success. If you neglect your “child” then it will throw a tantrum and work against you. When you take money for your “child’s” bank account then you have to return it. If you don’t then you will pay personal taxes on the money you didn’t return. Your sole decision making will determine the outcome of how healthy this child will grow up.
A Minute book is essentially a “Birth Certificate” for the corporation. You don’t carry around your birth certificate however if you need it for something important (like getting a passport) then you better have a Minute Book.
Like a birth certificate in which it defines who your parents are, a Minute Book will define the shareholders, directors and percentage of classes in which each party has invested into the corporation. It will also list its by-laws and the assets, for example.
You must keep a history of all important decisions that are made in the company. For example, if you want to sell your company in the future, the buyer’s lawyer will normally ask to see a copy of the Minute Book. Also, if there is a dispute about a company matter, the minutes can act as an official record of events.
You can lose your rights! In order to keep your corporation in good standing with your provincial Business Corporation Act, It is essential that you act like a corporation for liability and tax reasons. Failing to “act like a corporation” may lead a court to “pierce the corporate veil” which means the CRA will see you as a sole proprietor and tax you on a personal tax level. Efficiently structuring your company’s documents within a Minute Book is important for the companies success.
Business Corporations Act (SBC) requirements
• Documents within your corporate Minute Book must be kept up to date.
• All documents must be kept for a period of 7 years from the conclusion of the document.
• The Minute Book must be stored in a physical location within its province and accessible to the public during regular working hours.
A unanimous shareholder agreement is part of the legal obligation of the corporation. We call this the “Prenup”. It is important to draw up a contract between shareholders to minimize risk and any conflict. We encourage seeing a lawyer if more than one shareholder will “get married” and go into business together.
A shareholder loan (in a nutshell) is money owed between a Shareholder and his/her company. For sake of the comparison of your “Child”, this is when you take money out of your “child’s bank” or loan the “child” some money. You will take too much or you float the bank until it can make its own money.
The shareholder loan can also work like a bank or a credit card. Funds can be withdrawn or contributed to the corporation.
For Example, if a shareholder takes $5,000.00 out of the corporation (or uses business funds for personal use), that creates a debit position of $5,000.00. If the corporation is not withholding taxes, these funds are NOT considered payroll. This means you owe the company its money back. On the other side of the coin, if a shareholder deposits funds, or otherwise uses personal money for any business expenses, this creates a credit position in their shareholder’s loan. *If a shareholder paid for $20.00 worth of office supplies, then the business owes you 20.00
Throughout the year, (if the shareholder is not on payroll) the amount in the shareholders loan account will fluctuate depending on withdrawals/deposits. At the end of the year the shareholders loan should be assessed to determine the tax planning.
Every year you should work with your Accountant to determine tax planning and how to avoid paying on the high end of personal taxes and controlling the personal money taken out of the business.
There are several filing obligations (other than the corporate taxes) that you will be responsible for as a business, and this will depend on your industry and what is involved in your business. It is important to understand what your obligations are! We cover just a few and mostly from our federal government. When you incorporate, you will be given a “SIN Number” which is a 9 digit number. Since there is different reporting obligation with the federal government – they provide you with a different ending to determine what account you are reporting to:
123456789RC0001 – Corporate Account
123456789RT0001 – GST Account
123456789RP0001 – Payroll Account
123456789RZ0001 – T5 or T5018
Just to name a few…..
Fiscal Year End is a company’s “Birthday”. This is a company’s cutoff date in which it will need to report is full year of activity to the CRA. Unlike personal taxes, which has a Jan – Dec reporting period, a corporation can choose any month of the year to state its cutoff period, which may result in crossing a calendar year (eg. Apr 2021 to Mar 2022). In the first year of Incorporating a business, you must choose this year end but the first year filing must be within 52 weeks of the date of Incorporation. Once chosen, it must continue with that fiscal year until formally changed with the CRA.
The CRA requires annual filings to report all income and expenses. These filings do not have to be completed by a designated Certified Professional Accountant, however with ever changing tax laws, it is highly advised to have a professional complete the return.
Dissolution is Closing the Company, the official death certificate of the corporation. With any changes to the structure of the corporation, this is part of the legal obligation of the corporation. It is best that you talk to a lawyer regarding the dissolution and what is involved for your specific business – as this can be very complex.
However here is an example of some of the stages your business will go through to properly close your business on the bookkeeping end and with the CRA after dissolution:
Bookkeeping:
✓ Bookkeeping / Bank Reconciliation right up to dissolution date
✓Capital Assets must be sold back to the shareholder at Fair Market Value
• If the market value of the assets is higher than the book / tax value there could be some recapture of depreciation for tax.
• If the market value is higher than the original purchase price then there could be a capital gain for tax
✓ You may be required to notify by mail all of your company’s creditors of the dissolution.
• Claims submitted to the company by creditors can be accepted or rejected by your corporation.
• Accepted claims must either be paid or arrangements that are satisfactory to creditor must be made for repayment. With rejected claims, you must advise creditors in writing that your corporation rejects their claims. It is advisable to seek the services of an attorney to assist in this process. Your attorney can advise you about the relevant statutes governing actions on rejected claims.
✓Distribution of Remaining Assets
• After payment of creditors’ claims, the remaining assets, if any, may be distributed to the owners of the company. Assets are distributed in proportion to the share of ownership of “common” and “participating” shares. If you have a corporation that has multiple classes of stock, such as common and preferred shares, the corporate bylaws typically outline the procedure for distributing assets to these shareholders.
Canada Revenue Agency:
✓ All GST Reportings must be filed to dissolution date
• CRA may come back with another closing period in which one more GST reporting period may apply.
✓ All Corporate Taxes must be filed to dissolution date
If the dissolution date is after your last fiscal year end but before your next fiscal year end a secondary “short return” or Corporate Tax return will need to be done leading up to the dissolution date
Note: If the Province of Alberta has “striked” your corporation, meaning that they involuntarily dissolved your business, the CRA
will reject all corporate tax, GST and payroll filings until you have voluntarily Revived your Corporation with the registries. After such time, you may then voluntarily dissolve your business.
GST (Goods & Services Tax) is federally imposed tax on applicable sales/expenses. The standard rate for GST is 5% on the subtotal charged by the supplier. It is the responsibility of the supplier to ensure GST is charged on all taxable items (a list of GST applicable/exempt products & services are available online). There are 2 “types” of GST: GST on sales, and ITC’s (input tax credits – GST on expenses).
If a supplier does not allocate GST on applicable sales, it will likely result in an “out of pocket” payment. As GST is a federal tax, it is collected on behalf of the CRA, and cannot be viewed as a revenue stream. These amounts are to be held until the GST remittance has been filed.
When purchasing products/services, the CRA allows you to deduct the ITC’s (Input tax credits) paid on expenses, from the GST collected on sales (Again, this is only on taxable items & services). This is crucial, as the GST collected on sales, must be paid to the CRA. If there are more business expenses then there were sales, the CRA will then issue a refund for the difference of GST paid VS. GST collected
The CRA requires these amounts to be reported/remitted to them throughout the year. Remittance periods can be Monthly, Quarterly, or Annually (once a reporting period is chosen, you must continue with that reporting until it is formally changed with the CRA). The deadlines for the reporting periods are between 1 Month after the period end to 3 Months after the period end (depending on the reporting period chosen), payments/remittances completed after the deadline are subject to penalties and interest. The CRA will identify this account as RT0001.
Not all companies are required to be a GST registrant, newly incorporated companies are not required to register for GST until they have claimed $30,000.00 in gross revenue in a single fiscal year. If your industry is GST applicable and you fail to register a GST number, the CRA can backdate to your first $30,000.00 and you will be required to pay the 5% regardless if you have collected it or not. (some types of industries will be GST exempt regardless of revenue)
Tips:
A Provincial Annual Return is part of the legal obligation of the corporation. This is when you have to report to the Federal or Provincial Government, stating that there has been no changes done on the Corporation from his first Incorporated Date. Some of the changes that need to be reported are changes of shareholders or change of address, just to name a few. This filing is required every year, regardless of any changes or not. This filing is due a month before the incorporated date.
Failure to complete these filings can result in the corporation being struck. When a company is struck it is no longer able to operate as a corporation until it is revived. What this means in short is that the province in which you are operating in does not consider you an incorporated company legally operating in its Province. When this happens, CRA can you deem you as a sole proprietor and tax you accordingly (on the Personal Tax level).
At this time you will be required to Revive your corporation into good standings again by paying for all late annual returns and a Certificate of Revival (which can be the same cost as the initial incorporation)
Annual Returns must be kept in your Minute Book.
Every incorporated company will have what’s called a Year End (or Fiscal Year end). Unlike with personal taxes, the “year end “is always December 31, a corporation year end can be the end of any month (which often, will result in a fiscal year crossing a year – Starting in 2017, but ending in 2018). The only real influence when choosing a year end is that it must be within 52 weeks of the date of incorporation, and once a year end is chosen, it must continue with that end until formally changed with the CRA.
As with personal tax, the CRA requires annual filings to report all income and expenses. These filings do not have to be completed by a designated Certified Professional Accountant, however with ever changing tax laws, it is highly advised to have a professional complete the return.
With Fiscal year ends, the CRA has 2 separate deadlines, one for payment, and one for filing. The corporate tax payment deadline is 3 months after your fiscal year end. The Corporate tax filing isn’t due until 6 months after your fiscal year end. Obviously as the payment is due before the actual filing, the tax filer should be able to prepare an estimate for amounts owing, to reduce any interest. Interest will be allocated on any underpayments If overpayment occurs, the CRA will refund any amounts to you either in the form of a cheque, or a credit on a different CRA account (GST or Payroll). The CRA will not refund money by cheque if there are other balances owing for other accounts.
Tips:
A T5018 is slip filed with CRA to reflect income for contractors in the construction industry only. T5018 reporting periods can be either calendar year or fiscal year, depending on the reporting period of the first filing. The reporting period originally filed must be used until it is formally changed with the CRA. The deadline for filing is within 6 months after the period ending date, filings after this deadline are subject to daily penalties for every day late.
Information required on T5018’s include:
Failure to collect required information or excluding contractors from the T5018 filing can result in penalties
Tips:
There are 3 Types of Corporate Tax Filiings: Compilation Engagement, GIFI Engagement and T2 Only.
The new changes are as follows:
So, going forward you may be asked the purpose of the report. It will be assumed that most clients would need GIFI Engagements. However if Compilation Engagement is needed, then more work will need to be put onto the file to match the new Guidelines and such reports are 20% to 30% more expensive to prepare.
With Fiscal year ends, the CRA has 2 separate deadlines, one for payment, and one for filing. The corporate tax payment deadline is 3 months after your fiscal year end. The Corporate tax filing isn’t due until 6 months after your fiscal year end (6 months to file, 3 months to pay). Obviously as the payment is due before the actual filing, the tax filer should be able to prepare an estimate for amounts owing, to reduce any interest. Interest will be allocated on any underpayments If overpayment occurs, the CRA will refund any amounts to you, or apply the refund to amounts owing on other CRA accounts. The CRA will not issue any refunds if there are other balances owing for other accounts.
Intercompanies also share the corporate Small Business Tax Credit in which they combine the taxable income and tax accordingly to the applicable rules.Source Deductions are withheld amounts on employee pay checks (EI, CPP, Tax). Employers are required to deduct these amounts, and remit/pay them to the CRA. There are 4 different remitting frequencies: Quarterly, Threshold 1, Threshold 2, and the most common Monthly/Regular.
Employers are responsible for matching the deduction for CPP, and match+4% for EI. There is no employer contribution for the tax deductions on an employee’s cheque, any under remittance on the tax portion will result in an amount owing when the employee files their taxes.
When remitting source deduction, the employer must provide additional information using online banking, or a remittance voucher at the bank or when mailing a cheque. The information required is:
A Record of Employment (ROE) is a form submitted to Service Canada whenever there is a:
• Interruption of insurable earnings for an employee, including by not limited to: Quit, fired, lay off, maternity leave, or returning to school.
• Request from Service Canada for subsidizing a portion of an individual’s income if they were working 2 jobs as an EI benefit
• Change in pay periods
The ROE will provide detailed information about the employee, as well as gross earnings by period for up to 52 weeks of employment, when the employee started up until the employment was terminated. Even if a past employee is not seeking EI benefits, a ROE must be submitted. If filed online, you are not required to provide a copy of the ROE to the employee.
The deadline for filing a ROE is within 5 calendar days of:
• The first day of interruption (first day following the last day of work)
• The day an employer becomes aware of an interruption of earnings
ROE’s cannot be deleted, if there are errors on the ROE, or it was filed in error, the record must be amended using the serial number on the original form.
Tips:
A T4 is an annual slip filed with the CRA, that reflects the income claimed by an employee. If there were deductions from a paycheck for CPP, EI, or Tax, the employee must be issued a slip for every calendar year. T4 slips must be filed by February 28 of every year to avoid failure to file penalties and interest.
A T4 must show the amounts deducted for CPP, EI, and tax, and if there are deficiencies, the CRA will issue a PIER review to reflect the correct deductions. The deficiencies will not be reported on the employee’s T4 and is the responsibility of the business to cover the underpayments. Other taxable allowances & benefits such as health benefits, and vehicle allowance are also reflected on this slip.
Information that must be included on the T4 is:
Tips:
A T5018 is slip filed with CRA to reflect income for contractors in the construction industry only. T5018 reporting periods can be either calendar year or fiscal year, depending on the reporting period of the first filing. The reporting period originally filed must be used until it is formally changed with the CRA. The deadline for filing is within 6 months after the period ending date, filings after this deadline are subject to daily penalties for every day late.
Information required on T5018’s include:
Failure to collect required information or excluding contractors from the T5018 filing can result in penalties
Tips:
A WCB (Workers Compensation Board) Annual Return, is an annual filing due February 28th to the WCB Alberta.
This filing will report the amount paid to all employees & subcontractors without their own WCB in a calendar year. With every annual return (or upon activation of a WCB account) an estimate of funds paid out in the following year is provided to calculate the premiums payable. The premiums are calculated based on the amount estimated to pay out, as well as the industry (higher risk industries pay a higher amount, then those of lower risk).
WCB estimates can be changed anytime throughout the year, as often as desired, up to December 31. Estimates should be as accurate as possible while anticipating business activities to ensure consistent premium payments. Underestimating premiums can also result in penalties once the return is filed.
If a business or individual has Personal Coverage Only they are not required to file an annual return
Tips:
• 6 Month reviews on the amounts paid out can give you a good idea of where you are at with regards to your estimate for the year, this can be useful in order to avoid overpaying on premiums, and to avoid penalties for under estimating
• Prior to the annual return deadline, you will receive a WCB Annual Return password; make sure this is kept or provided to the individual or firm that will be filing the annual return
• When a contractor with their own WCB is hired, request the WCB number to ensure they aren’t included in the estimate
T5’s are an annual slip filed with the CRA for a Statement of Investment income. The most common use for this slip is what most people know as Dividends. T5’s issued from a corporation are reported at a fiscal year end, which then require a T5 to be filed with CRA in the calendar year the dividends/investment income were claimed on the T2 (Corporate Year End). Like a T4, the deadline for filing these slips is February 28 of the following year.
As a business owner, dividends (or any T5) can only be issued if the numbers were reported on the corporate year end filing of a company. Dividends usually sound appealing to business owners as they are told they are “taxed lower”, this is not necessarily the case. Dividends appear to be taxed lower due to a tax credit that is calculated on the T5. Unlike a T4/wages a T5 does not classify as an expense and cannot be claimed as such.
T5’s can only be filed if the retained earnings (carry forward profit from prior years) is a positive balance (not carrying forward a loss), and if there aren’t any balances owing to the CRA, failure to comply with these rules can result in the dividend tax credit being removed and the investment income is taxed at regular rate.
It is important to notify the tax preparer & filer to any personal tax related benefits, as T5’s (other income) aren’t eligible for some benefits that T4 (earned income) are. The most obvious example would be CPP, as Dividends do not contribute to CPP, therefore lowering the amount you are entitled to when you want to start drawing those payments.
GST (Goods & Services Tax) is federally imposed tax on applicable sales/expenses. The standard rate for GST is 5% on the subtotal charged by the supplier. It is the responsibility of the supplier to ensure GST is charged on all taxable items (a list of GST applicable/exempt products & services are available online). There are 2 “types” of GST: GST on sales, and ITC’s (input tax credits – GST on expenses).
If a supplier does not allocate GST on applicable sales, it will likely result in an “out of pocket” payment. As GST is a federal tax, it is collected on behalf of the CRA, and cannot be viewed as a revenue stream. These amounts are to be held until the GST remittance has been filed.
When purchasing products/services, the CRA allows you to deduct the ITC’s (Input tax credits) paid on expenses, from the GST collected on sales (Again, this is only on taxable items & services). This is crucial, as the GST collected on sales, must be paid to the CRA. If there are more business expenses then there were sales, the CRA will then issue a refund for the difference of GST paid VS. GST collected
The CRA requires these amounts to be reported/remitted to them throughout the year. Remittance periods can be Monthly, Quarterly, or Annually (once a reporting period is chosen, you must continue with that reporting until it is formally changed with the CRA). The deadlines for the reporting periods are between 1 Month after the period end to 3 Months after the period end (depending on the reporting period chosen), payments/remittances completed after the deadline are subject to penalties and interest. The CRA will identify this account as RT0001.
Not all companies are required to be a GST registrant, newly incorporated companies are not required to register for GST until they have claimed $30,000.00 in gross revenue in a single fiscal year. If your industry is GST applicable and you fail to register a GST number, the CRA can backdate to your first $30,000.00 and you will be required to pay the 5% regardless if you have collected it or not. (some types of industries will be GST exempt regardless of revenue)
Tips:
Every incorporated company will have what’s called a Year End (or Fiscal Year end). Unlike with personal taxes, the “year end “is always December 31, a corporation year end can be the end of any month (which often, will result in a fiscal year crossing a year – Starting in 2017, but ending in 2018). The only real influence when choosing a year end is that it must be within 52 weeks of the date of incorporation, and once a year end is chosen, it must continue with that end until formally changed with the CRA.
As with personal tax, the CRA requires annual filings to report all income and expenses. These filings do not have to be completed by a designated Certified Professional Accountant, however with ever changing tax laws, it is highly advised to have a professional complete the return.
With Fiscal year ends, the CRA has 2 separate deadlines, one for payment, and one for filing. The corporate tax payment deadline is 3 months after your fiscal year end. The Corporate tax filing isn’t due until 6 months after your fiscal year end. Obviously as the payment is due before the actual filing, the tax filer should be able to prepare an estimate for amounts owing, to reduce any interest. Interest will be allocated on any underpayments If overpayment occurs, the CRA will refund any amounts to you either in the form of a cheque, or a credit on a different CRA account (GST or Payroll). The CRA will not refund money by cheque if there are other balances owing for other accounts.
Tips:
A T5018 is slip filed with CRA to reflect income for contractors in the construction industry only. T5018 reporting periods can be either calendar year or fiscal year, depending on the reporting period of the first filing. The reporting period originally filed must be used until it is formally changed with the CRA. The deadline for filing is within 6 months after the period ending date, filings after this deadline are subject to daily penalties for every day late.
Information required on T5018’s include:
Failure to collect required information or excluding contractors from the T5018 filing can result in penalties
Tips:
There are 3 Types of Corporate Tax Filiings: Compilation Engagement, GIFI Engagement and T2 Only.
The new changes are as follows:
So, going forward you may be asked the purpose of the report. It will be assumed that most clients would need GIFI Engagements. However if Compilation Engagement is needed, then more work will need to be put onto the file to match the new Guidelines and such reports are 20% to 30% more expensive to prepare.
With Fiscal year ends, the CRA has 2 separate deadlines, one for payment, and one for filing. The corporate tax payment deadline is 3 months after your fiscal year end. The Corporate tax filing isn’t due until 6 months after your fiscal year end (6 months to file, 3 months to pay). Obviously as the payment is due before the actual filing, the tax filer should be able to prepare an estimate for amounts owing, to reduce any interest. Interest will be allocated on any underpayments. If overpayment occurs, the CRA will refund any amounts to you, or apply the refund to amounts owing on other CRA accounts. The CRA will not issue any refunds if there are other balances owing for other accounts.