Tag: business and corporate tax

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?

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?

I was fully reimbursed by my client for meals I purchased while providing services to my client. Are my meals expenses 100% deductible in this case?

Yes. You will be able to fully deduct your meals expense against the reimbursement (which is treated as income). Therefore, the net effect on your income would be $0. The amount will be 50% deductible for your client.t be charged on shareholder loans to avoid a taxable benefit.  

How far back can the CRA audit an individual or business?

The CRA reserves the right to audit your prior year tax filings going back six years. Hence, you should keep receipts and documentation supporting your claims up to six years.  

If I operate my corporation in multiple provinces, is there a special way my taxable income gets allocated to the provinces?

The taxable income in the multiple provinces gets allocated based on a formula. The taxable income is prorated and allocated based on the salaries paid and the gross revenue earned in those provinces.  

Is there a quarterly remittance requirement for GST/HST similar to Income Tax?

Yes. Similar to income tax, if the net GST/HST payable exceeds $3,000 on a GST/HST return, your business will be required to pay quarterly instalments of GST/HST. The CRA often does not inform the business of the GST/HST remittance requirement and as such, this is an area that most businesses overlook.  

I purchased a corporate bond during the year. The purchase price included accrued interest to the seller of the bond. Is there a way for me to avoid being taxed twice on accrued interest?

Yes, to avoid double tax you are entitled to deduct accrued interest you paid when you bought the bond from the interest income for the year. Accrued interest will be deducted in Schedule 4 under carrying charges and interest expenses.  

I am a sole proprietor and am selling my business. Can I use the lifetime capital gains exemption of $800,000?

As a sole proprietor you are not eligible for the lifetime capital gains exemption (CGE). The CGE is only available on the sale of the shares of a Canadian Controlled Private Corporation (CCPC). The CGE, as the name suggests, exempts up to $800,000 of profit (i.e. capital gain) on the sale of shares of a … Continue reading I am a sole proprietor and am selling my business. Can I use the lifetime capital gains exemption of $800,000?
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