Category: Business & Corporate Tax

If GST was not collected on taxable products/services at the time of sale, what options do suppliers/purchasers have?

Section 224 of the Excise Tax Act authorizes suppliers to initiate legal action against a recipient for the recovery of unpaid tax if they account for the tax payable and disclose the tax payable (on the invoice) for the supply. In the event that the original invoice does not indicate the purchase is tax-extra (tax … Continue reading If GST was not collected on taxable products/services at the time of sale, what options do suppliers/purchasers have?

My partner and I are engaged in a small business together. Do we have to file a Partnership Return?

The CRA recently changed its administrative policy on who needs to file a Partnership return in order to alleviate the filing responsibility for small partnerships. If you do not meet the criteria #5 of Filing T5013 Partnership Information Return; then your filing responsibility will consist of reporting your % of Partnership income/expense on form T2125 … Continue reading My partner and I are engaged in a small business together. Do we have to file a Partnership Return?

Can an independent contractor with $0 in sales still claim business expenses?

Yes, even though you may not have earned income, expenses you incurred for business purposes can be claimed. Please keep source documents for such expenses handy, in case the CRA asks to see them. You must consider that one of the conditions for expenses to be legitimate is if they are ‘income-earning’ (i.e. incurred to … Continue reading Can an independent contractor with $0 in sales still claim business expenses?

Is it possible to convert the debt owed to me by a corporation into shares of the same corporation?

Yes. Section 51 of the Income Tax Act provides lenders with the opportunity to exchange debt owed to them by a company for newly-issued shares of that same entity without being considered to have disposed of the debt, hence preventing occurrence of any capital gain or loss. Not all of the liability held by the … Continue reading Is it possible to convert the debt owed to me by a corporation into shares of the same corporation?

My company is incorporated in a province other than Ontario, but will be carrying on business in Ontario. Do I need an extra-provincial license?

If your company is incorporated in a province other than Ontario, but is carrying on business in Ontario, you don’t require an extra provincial license to operate in Ontario. However, your legal counsel or professional accountant will need to do the following: File an Initial Return/Notice of Change with the Ontario Companies Branch within 60 … Continue reading My company is incorporated in a province other than Ontario, but will be carrying on business in Ontario. Do I need an extra-provincial license?

My Canadian corporation conducts business in multiple provinces. How does this affect my company’s corporate taxes?

When your company’s T2 Corporate Tax Return is filed by your professional accountant, Schedule 5 must be completed and included with the filing. Schedule 5 allocates the company’s taxable income to each province in which it’s earned. While the federal tax rate of 11% remains constant, the provincial rate tax rate will vary based on … Continue reading My Canadian corporation conducts business in multiple provinces. How does this affect my company’s corporate taxes?

I received payment for products sold and services provided in the previous year. When do I include the payment in income?

By default, businesses follow the accrual basis of accounting. This means that you report income in the period in which you provided the service / sold the goods. Therefore, in this example, you would report the income in December 2013. Similarly, if you receive a bill for an expense that you incurred in December 2012 … Continue reading I received payment for products sold and services provided in the previous year. When do I include the payment in income?

As a corporation doing business in Quebec for the first time, what do I need to know or do to get the necessary information to file a Quebec tax return?

The corporation must be registered in Quebec’s enterprise register by obtaining a number from Revenu Quebec for income tax purposes. This number enables one to file the income tax return that all corporations carrying on a business in Québec are required to file. Complete the form LM-1-V, “Application for Registration to obtain Quebec ID”, or … Continue reading As a corporation doing business in Quebec for the first time, what do I need to know or do to get the necessary information to file a Quebec tax return?

As a GST/HST registrant, when am I required to start collecting HST on sales?

You are required to collect HST when your taxable sales (over the last 4 quarters) exceeds the $30,000 threshold. As a voluntary registrant, you need to collect HST on sales starting on the earlier of: the effective registration date listed on your GST/HST account application, the day of the supply (sale) that made go over … Continue reading As a GST/HST registrant, when am I required to start collecting HST on sales?

When is manufacturing and processing equipment eligible for accelerated depreciation?

Eligible machinery and equipment, used in Canada for the manufacture and process of goods for sale or lease is normally included in Class 43 and depreciated at 30% per year. You can, however, make an election by attaching a letter to the income tax return for the tax year you bought the property indicating you … Continue reading When is manufacturing and processing equipment eligible for accelerated depreciation?

I’m a US business planning on selling products to Canadian customers. Do I need an extra-provincial license?

Americans, who are not incorporated, and who are carrying on business in a Canadian Province, must register their business in that province. To register, you must obtain an extra-provincial license. Failure to register can result in a penalty of $2,000 for individuals. Selling products to Canadian customers or providing services to Canadian customers is considered … Continue reading I’m a US business planning on selling products to Canadian customers. Do I need an extra-provincial license?

Why are Canadian dividends grossed-up for tax purposes?

Dividends are paid out of corporations from after-tax profits. As the company has already paid tax on the amount, taxing the shareholder on the full dividend income would not be reasonable. Hence, in order to prevent this, the gross-up and tax credit system has been created. Grossing up the dividend converts it to an amount … Continue reading Why are Canadian dividends grossed-up for tax purposes?

My company is a partner in a partnership. For tax purposes, how do I record the partnership interest?

Initially, the partnership interest will be treated as an asset for the amount of your company’s contribution to the partnership. Subsequently, your partnership interest amount will be increased (or decreased) by your portion of the Partnership’s net income/loss. Furthermore, any distribution made to your company as part of a draw from the partnership will directly … Continue reading My company is a partner in a partnership. For tax purposes, how do I record the partnership interest?

As an owner of a corporation, can I not simply pay my child a salary/dividend to avoid paying high taxes on it myself?

Paying children (minors – children under the age of 18) a salary and/or dividend is a useful strategy when income splitting. If you would like to pay a salary to the child, the amount paid must be reasonable. “Reasonableness” is determined based on what the typical/normal pay would be to anyone performing a similar duty. … Continue reading As an owner of a corporation, can I not simply pay my child a salary/dividend to avoid paying high taxes on it myself?

What happens if I borrow money from my corporation?

When you borrow money from your corporation (i.e. shareholder loan), the amount borrowed is included in your income for the year, unless you repay the loan within 1 year of the corporation’s year-end. For example, assume you borrowed money from your corporation on September 26, 2013, and your corporation’s year-end is December 31, 2013. In … Continue reading What happens if I borrow money from my corporation?
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