Our firm offers special one-stop shopping packages for corporate clients seeking help with small business taxes. This includes bookkeeping services, individual and family tax planning, as well as personal and corporate tax preparation.
Taxation of a Sole Proprietorship
The simplest type of business legal structure is the operation of a Sole Proprietorship. This legal structure can be a registered trade name or the use of an individual’s personal legal name without registration with the Ontario Government. The completion of a Sole Proprietorship business taxes are additional schedules and information attached to a Personal Tax Return that is due by June 15th each year. The taxation year is required by CRA to be January 1st to December 31st each year. The taxable income of a Sole Proprietorship is the Gross income less eligible expenses, and no income deferral is possible.
Please see below for gross income and eligible expenses for Sole Proprietorships and Partnerships:
Taxation of a Partnership
This legal structure must have a registered trade name registered with the Ontario Government. The completion of a Partnership’s business taxes are done through additional schedules and information attached to a Personal Tax Return that is due by June 15th each year. The taxation year is required by CRA to be January 1st to December 31st each year. The taxable income of a Partnership is the Gross income less eligible expenses.
Notes on Income & Expenses for Sole Proprietorships & Partnerships:
CRA has very specific rules and regulations with regards to how gross income and eligible expenses are deductible. Some expenses are 100% deductible on occurrence such as office supplies, while other expenses such as the purchase of fixed assets can only be deducted over a specific period or time based on CRA rules. The deduction of home office and vehicle expenses involve special CRA rules based on the fact that these expenses are often a mix of personal and business assets.
Vehicle expenses can not be deducted as a fixed amount per kilometres driven for business purposes. The same is also required for deducting home office expenses. CRA has specific rules for deducting home office expenses.
This deduction must also be claimed correctly to avoid losing the Capital Gains Exemption on the sale of an individual’s Principle Residence.
Taxation of a Corporation
A Corporation is created when a new company is formed by completing Articles of Incorporation with either the Ontario Government or Industry Canada. Corporation’s have many tax planning and other advantages when compared to a Sole Proprietorship or Partnership.
A Corporation comes with a number of options, making it a more flexible vehicle overall:
- choice of when to set year-end
- option of tax deferral
- potential separation of unlimited personal liability
- owner remuneration can be taken as Salary or Dividends (each has advantages and disadvantages)
A corporation must have a separate bank account and all monies must be recorded going in and out of the corporation. They also have special rules for the deduction of certain expenses. For example, a corporation is allowed to pay vehicle expenses as a fixed rate per kilometre traveled by employees without having to track all personal and business expenses for automobiles owned by the employee.
It is also very common for many consulting companies to require consultants to operate as a corporation. Any income earned between corporations protects the payor corporation for having a consultant worker reclassified as an employee. Any employee classification by CRA can bring on mandatory payroll taxes such as Canada Pension Plan and Employment Insurance and also attracts all the Ontario government’s Ministry of Labour rules including severance payments when consulting contracts end.
Why Work with Shouldice Accounting?
Our experienced team can help smooth the path to success for your business through these six pillars:
- Maximum Profitability – we work to maximize the amount of money left in your pocket
- Always on Time – we work closely with you to ensure all work is completed and filed on time
- Differentiator – we work exclusively with small incorporated owner managed clients and have deep knowledge of their needs
- Availability – our firm policy is to answer all calls and emails immediately or within 24 hours
- Communication – we hold our firm to high standards when it comes to communicating with our clients
- Peace of Mind – our clients have tremendous peace of mind knowing their accounting and taxation needs are well taken care of
Schedule a First Meeting
As small business accountants, we also offer a first session for those clients looking for guidance for a new start-up venture.
Let us know when you get in touch if you’re also seeking tax and accounting guidance for a start-up, and we’ll make sure to schedule extra time.