The Corporate Owner's Manual Nobody Gives You
Hello All,
This is the most common scenario that I see once someone has decided to incorporate.
They go ahead with the incorporation (either online, themselves or through a lawyer) and set up a corporate bank account.
But then, they're not really sure what to do next. They know that they have tax obligations and should probably get an accountant. But everything else is a bit fuzzy.
Incorporating a business is a bit like buying a complicated piece of equipment without receiving the instruction manual.
Related Video on the the 7 Things to do when you first incorporate
Here are some of the things that manual should cover:
Moving money between your corporation and your personal account isn't as simple as it seems. Every transfer needs to be categorized as salary, a dividend, a shareholder loan, or a repayment. If it isn't, you end up with a shareholder loan balance that CRA expects to be repaid or declared as income within a specific timeframe. Related video on the tax risks of shareholder loans.
Paying yourself from your corporation isn't automatic. You need to decide between salary, dividends, or a combination of both and that decision affects your personal tax rate, your RRSP contribution room, and whether you're paying into CPP. It is really important to have a plan. Related video on the right way to pay yourself.
Corporate tax deadlines are different from personal ones. Your corporation has its own filing deadline based on its fiscal year end, which doesn't have to be December 31. If you miss them, then late filing penalties apply. This is separate from personal tax filing deadlines.
Your bookkeeping system is one of the most important decisions you'll make in your first year. Leaving it until year-end means reconstructing months of transactions under pressure, which can be expensive, time consuming and error-prone. Getting a system set up as soon as possible after you incorporate makes this process much much simpler.
Quebec corporations have two sets of obligations. A separate provincial corporate tax return filed with Revenu Québec, a Quebec Enterprise Number, and provincial deadlines that are done in parallel with but separately from the federal ones. Many new Quebec incorporators don't realize this until their first tax season.
Many of the problems I see with newly incorporated businesses relate to an unsteady foundation. It can be easier to put off important decisions which creates a lingering sense of uncertainty. And stress.
The good news is that none of this is difficult to manage once you know it exists.
I recently put together a free guide for newly incorporated Canadians. It covers the setup steps in order, explains the obligations that many get wrong, and gives you a concrete starting point for doing things right from day one.
And if you're trying to figure out whether incorporation is right for your situation, I created a short free quiz with 7 key questions to answer and a customized result.
As always, I'd love to hear about your challenges with incorporating. Simply reply to this email.
Ronika
