TAX CONSIDERATIONS WHEN SETTING UP YOUR BUSINESS Starting business in Canada is “simple but not easy”... However taxes are much much more complex and complicated

TAX CONSIDERATIONS

WHEN SETTING UP YOUR BUSINESSStarting business in Canada

is “simple but not easy”... However taxes are much much

more complex and complicated

Bing Wang CPA, CMA [email protected] AccXpert Business Solutions, 613.600.6988

mailto:[email protected]

Bing Wang CPA, CMA [email protected] AccXpert Business Solutions, 613.600.6988

mailto:[email protected]

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Topics to discuss

Bing Wang CPA, CMA, AccXpert Business Solutions, [email protected] 613.600.6988

Tax Implications for Different Business Entity

Tax Filing Requirements Discussion: -- About New Immigrant Start

up Business - the Canadian Entrepreneur

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Tax Implications - Sole Proprietorship

A business you operate yourself as a sole proprietorship

Taxed at their own personal tax rate, which might be lower or higher than the corporate tax rate.

To protect personal assets and income from a tax audit by deducting only legitimate company expenses.

Reporting self-employment income on T2125 for business income , professional income , and commission income.


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Tax Implications - Partnership (1)

A business you operate with someone else as a partnership

Each partner contributes financial capital and resources to the partnership, and shares responsibility for any profits or losses.

Partnerships are not taxable entities, profits and losses are “passed through” to the company’s owners and reported on each partner’s individual tax return.

Some partnerships must file an annual partnership return reporting the company’s income, gains, losses and deductions.


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Who must file a partnership return - T5013

(Statement of Partnership Income):

– the partnership has an absolute value of revenues plus an absolute value of expenses of more than $2 million*, or has more than $5 million in assets**; or

– is a tiered partnership or has a corporation or a trust as a partner; or

– invested in flow-through shares of a principal-business corporation that incurred Canadian; or

– the Minister of National Revenue requests one in writing.


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Important tax reporting information that partners should know:

Partnerships –T5013, Partnership Information Return

Individuals – T1, Income Tax and Benefit Return; T2125 Statement of Business or Professional Activities; T776 Statement of Real Estate Rentals

Corporations – T2, Corporation Income Tax Return;

Trusts – T3, Trust Income Tax and Information Return;Bing Wang CPA, CMA, AccXpert Business Solutions, [email protected] 613.600.6988

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For T5013 filing - Partnerships must send to CRA: T5013, Statement of Partnership Income; T5013 FIN, Partnership Financial Return; T5013SUM, Summary of Partnership Income; T5013 SCH 1, Net Income (Loss) for Income Tax

Purposes; T5013 SCH 50, Partner's Ownership and Account

Activity; T5013 SCH 100, Balance Sheet Information; T5013 SCH 125, Income Statement Information; T5013 SCH 141, Financial Statement Notes Checklist;


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Tax Implications – Corporation (1)

CCPC or non-resident corporation or foreign corporation? Active business income or Passive income (e.g. Rental

income) or PSB (Personal Service Business)? Pay Salary (Payroll T4) or Dividend (T5)? Corporations can be subject to a double tax Non-Arm's Length Transactions Investment in Foreign Affiliates or Payments to Non-

Residents Corporations are eligible for special tax deductions

(e.g small business deduction, SR&ED - Scientific Research and Experimental Development tax credit).

..........


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Tax Related Regulations: - Corporate Minute Book (Mandatory in QC), includes

incorporation registration docs, director and share holders info, share register, resolutions, etc.

- CRA business account record up to date - Accounting book and all receipts for 6 years - Internet Business Activities - Audit, Review or Compilation Engagements for FS - On time filing all required returns - ...........


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Tax Accounting Consideration: - Balance sheet: Assets, AR, Owners

investment, Liability, AP, loans, Retained earnings, Dividend, Capital shares, Net loss, Net assets, ....

- Net Loss carry back or forward - CCA and Capital gain/loss - Cumulative Eligible Capital Deduction - Related and Associated Corporations


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Tax Filing Requirements(1): What to do when start-up and operate business in Canada?

Sole Proprietorship Do you hire employee or contractor? CRA BN# (RC) & Payroll account (RP), Payroll stub

and remittance (PD7A); T4, T4-SUM, T4A, T4A-SUM Do you charge GST/HST or claim ITC? CRA GST/HST Account (RT), GST34 return Payroll related: WSIB, CPP/EI/Income tax withholding,

Vacation pay; Public holiday pay, ROE, etc. Personal business income tax return: T1 return

with T2125 reporting Other: Instalment Remittance Voucher, ….


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Partnership All Same as Sole Proprietorship

requirements, PLUS ... For T5013 info filing - Partnerships

must send to CRA: Form T5013 FIN, Form T5013SUM, T5013,

Form T5013 SCH 1, Form T5013 SCH 50, Form T5013 SCH 100, Form T5013 SCH 125

Form T5013 SCH 141Bing Wang CPA, CMA, AccXpert Business Solutions, [email protected] 613.600.6988

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Corporation (Federal or Ontario): Corporation #, BN # (RC), GST/HST # .... Annual corporation information return T2 Corporate Income Tax Return PD7A Payroll Tax Return T4 Summary of remuneration paid T4A Summary of commission paid T5 Summary of dividend paid GST34 Goods and Services Tax/Harmonized Sales Tax Other related: WSIB, ROE, Instalment Remittance

Voucher .... If QC Corporation: NEQ#, ID#, CO-17, TPZ-1015, RL-1,

QST ....


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Discussion & Conclusion


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About Start up business - the New Canadian Entrepreneur

2.4 million businesses in Canada: 1.3 million are solo ventures with no employees; 611,000 have 1-4 employees ; 470,000 have 5-99 employees ; Only 25,000 have more than 100 employees.

More than half (53%) of all new startups are run by part-time entrepreneurs

a third (35%) of startups trying to go full-time would quit their jobs if they could pull in a mere $30,000 a year.

For Mature Businesses (more than 4 yrs old), 72% are run by full-time entrepreneurs


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Getting to the Bottom Line

Startups overwhelmingly understand the importance of engaging a professional accountant: Four-fifths (80%) of startups have engaged

an accountant at some stage in the development of their business.

Three quarters (73%) of startups believe that an accountant would add value to their business.

Unfortunately, only 13% are actively working with an accounting professional.


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Conclusion: When’s the Right Time to Hire an Accounting Professional?


If you’ve started a new business, it might save you time and a headache to hire Accounting Professional at early stage.

What Exactly Does an Accounting Professional Do? Analyzes the financial big picture and offers strategic advice Produces key financial documents and can help file company

taxes Act as outsourced CFO, to advise on financial strategies Performs day-to-day hands-on tasks: handling tax related

paperwork, bookkeeping, payroll and paying taxes Tracks company expenses to ensure every cost is recorded

correctly for taxes Keep up-to-date on new tax laws and regulations change in

order to avoid legal troubles

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Contact AccXpert TaxServices

Bing Wang CPA, CMA, [email protected], 613.600.6988 (Mobile) 613-800-0119 (Fax)

AccXpert Business Solutions Ltd.,1100 – 2720 Queensview Drive, Ottawa ON K2B 1A5 CANADA

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TAX CONSIDERATIONS WHEN SETTING UP YOUR BUSINESS Starting business in Canada is “simple but not easy”... However taxes are much much more complex and complicated