Tips for Incorporation Canada Watch Video
Allan Madan, CPA, CA
This article is about business tips for incorporation Canada. Read More…
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
I’m considering taking a job as an emergency physician in Ontario. I’m currently an American Citizen and resident and though I intend to seek Canadian permanent residency and eventual citizenship I will have US tax paying and filing obligations for the immediate future.
Any thoughts on how incorporating as a physician in Canada would affect my situation?
Hi Miranda,
The main tax advantage of incorporating as a physician is that you can defer paying income tax on your professional income by retaining most of your income inside the corporation. The corporation will pay a salary to you so that you can continue to enjoy and pay for your lifestyle. The corporate tax rate for Canadian corporations held by Canadian residents is only 15.5%, which is why many professionals incorporate their practices.
The salary you earn in Canada will be taxable to you in the US. But you will receive a foreign tax credit in the US for the Canadian taxes paid, thereby reducing / eliminating double taxation.
Please let me know if you have any questions.
Allan Madan, CPA, CA
Hi Alan
You said: ” Industry Canada requires all federal corporations to file an annual return; ”
That annual return cost amount that Industry Canada charges — on the balance sheet: will it be counted as a capital asset that depreciates over the year (ie because its value lasts for only a year until you have to pay it again) with its accompanying amortization amount or can it be recorded as a yearly expense on the balance sheet?
Also what GIFI would I use in either case?
thanks
Hi Dhiraj,
The fee paid to Industry Canada to process the annual return is a current expense and should be reported on the form G125.
Hi Alan, please let me ask you two questions regarding holding company.
1. when dividends are paid from main company to holding company, isn’t there a dividend tax?
I read somewhere it’s about 33%??
2. From your article “Sole Proprietorship vs corporation”, you mentioned that the professional corporation
can give 2% interest loan to holding company for investment. If the dividends are really tax-free,
can the holding company just use the dividends they received for investing? Why make it complicated?
Anyways, I think you are awesome!
Andy
Hi Andy,
Thanks for your questions. Dividends paid by a corporation to its parent corporation (holding company) are completely tax-free so long as the parent corporation owns at least 10% of the shares of the payer corporation. Otherwise, Part 4 tax (33%) will apply to the dividend received.
The holding company can use the dividend money it receives to reinvest. Interest does not need to be charged, unless there’s a loan between the two companies.
Hi, I’m currently IT Contracting via my own corporation in Canada, but looking to move to the UK next year to do IT contracting. How can I continue to contract part-time for my Canadian client yet still achieve non-resident status? Do I need to shut down my Canadian Corporation and have my UK corporation open a bank account here?
Hi Wayne,
You can keep your Canadian corporation and still become a non resident of Canada. The treaty with Canada and the UK states that you are a resident of the country where your permanent home is situated. A permanent home can either be rented or owned.
Thank You,
Allan Madan, CPA, CA
Hi Allan,
I’m planning to buy an existing incorporation company, if the vendor wants to sell all his share of the company and transfer ownership. Is that means a buyer also buy his liabilities too? What happen if the company has debts in the company, is the buyer has to responsible for that? How would I avoid from getting his debts too? Please advice. Thank you.
Hi Lesley,
If you purchase the shares of a corporation you will inherit its liabilities. Consider buying the assets instead. If you must buy the shares then you should insist on indemnification from the buyer from existing liabilities (both known and unknown).
Hi Allan,
Thank you for your prompt reply.
I want to clarify thay what exactly different between buying shares and buying assets of incorporation company beside inherit its liabilities. Are the operation of the corporation the same in both? If buying assets of corporation, do i still own the company?
What are the disadvantages and advantages of the vendor and of the buyer if I only buy the assets or shares of his incorporation company?
I got information from my vendor saying if I buy company shares, this way is beneficial for me too as the buyer. Is that truth?
Please advice.
Regards,
Lesley
Like what you said, this is Important for the people thinking of incorporating and I’m the one for that people, that’s why I am really relate for this topic and also very interested, Thank you for the tips you shared about incorporating, you helped me to choose and also for decision.
Hi Cody, thank you for your feedback.
I have been issued a T4a from my company this year and my job profile is tagged as self contractor . Any guidance on what I can claim in expenses in T2125 …..
Hi Anu, you can claim the following business expenses on form T2125:
– adveristing
– meals and entertianment
– bad debts
– insurance
– bank charges
– office expenses and supplies
– professional fees
– travel expenses
– home office expenses
– vehicle expenses
Hi Mr. Madan,
If I have a commervial property downtown Toronto and I generate about $70k in rental income before expenses, is it worth incorpoating? My accountant implied it wasnt worth it if we are not making over 100k. Your answer would be greatly appreciated.
Thanking you in advance.
Hi Patti,
You will not save tax by incorporating a rental property in Ontario, Canada. The corporate tax rate will be approximately 50% on net rental income (after expenses). Also, your rental operation is too small to take advantage of the three tier structure.
I am RN with the opportunity to work as a consultant . I will be working on a first nations reserve in Ontario. My first question is in regards to HST, the Band is opt out of paying this, therefore I wont be charging HST. What do I put on my forms? I will be supplying my own equipment and they are paying me a daily rate, I want to incorporate but avoid the PSB issues. Any thoughts
Hi Andrea,
If the services provided are ‘exempt from HST’, then you do not collect HST and you cannot claim a refund for HST paid on business expenditures. If your net income (after expenses) is $75,000 or higher, then the tax savings from incorporation will outweigh the legal / accounting fees associated with forming and maintaining a corporation. In his case, it would be advantageous to incorporate. You are correct – you have to be careful of the personal service business rules. If it’s determined that you have an ’employer-employee’ relationship with your boss, then a very high corporate tax rate will be imposed on your corporation’s profits, and most tax deductions for expenses will be disallowed.