Incorporation is a big step in the progress of your business, and there are new things to consider. A corporation is now a separate entity from you, and everything is new again. You now have to re-register for all those programs, such as GST/HST. It’s a brand new ball game.
Were you a proprietorship before incorporating? If so, you must close your proprietorship and all corresponding accounts. You can pick the day before the date of incorporation or a date sometime after that.
The first thing you need to do is decide on is a year-end for your new corporation. Please, please do not choose December 31st. That date absolutely sucks for any tax planning on what to give the owners wages and/or dividends for the year. There’s not enough time to figure out wages and the corresponding deductions, as any deductions are due by the 15th of January. That means you have to figure out wages and deductions within two weeks after the year-end. That’s impossible. Talk to your accountant as to what you year-end should be. Popular year-ends are the months of July to September.
You can look at when your busy time starts and maybe end your year-end just before that date. Usually one picks the end of the month for a year-end cut-off. You can have a short year for your first incorporated year.
There are more stringent reporting requirements now that you’re incorporated. You must keep a minute book of the share activity, resolutions, year-end information, etc. You must also file an annual report every year with your province. Unless you’ve filed as a federal corporation then you must file one with the federal government, and with your provincial government.
You must now file two income tax returns, one for the corporation (called a T2) and you’re personal return (called a T1). Your bookkeeping also go a bit more complicated, as you must keep a real set of books. As a proprietorship you could get away with just sorting everything by category and adding it up at the end of the year. With a corporation, the government expects you to have a set off books using some kind of accounting software. I also find that banks, with which your corporation has loans, also require financial statements either monthly or quarterly.
You must open a new bank account for the corporation. You can use your existing bank or go to a new bank. Don’t let your bank just convert your proprietorship account to the corporation, as this creates havoc for the accounting.
Don’t forget to add any ‘doing business as’ names to your bank account. If you’re bank won’t add another name, change banks. I’m with VanCity and I have three dba’s.
You must register your corporation for the applicable programs. You’ll need a GST/HST account, provincial or retail sales tax account, workers’ compensation account, importer account, payroll account etc. Some provinces automatically alert Canada Revenue Agency (CRA) about new incorporations and you’ll get a letter from CRA stating your corporation account number. This number is the business number (9 digits) followed by RC0001 (123 456 789 RC0001). This will be the same number for all your federal government accounts, such as GST/HST. In BC, this number will be used for opening a PST account.
I find it easiest & fastest to call CRA and open up your GST/HST, payroll accounts, etc. Ensure you have your business number and other incorporation information handy when you call.
Do you have assets that were in a proprietorship/partnership? If so, you must transfer those to the corporation. You would transfer these into the corporation at the fair market value at the time they are transferred. You won’t have to charge the corporation GST/HST as you can transfer taxable supplies into the corporation GST/HST free by filing GST44 — Election Concerning the Acquisition of a Business or Part of a Business
You can also transfer assets into the new corporation provincial or retail sales tax free, as you already paid the tax on them and are not technically ‘selling’ them to the corporation. Check with your provincial tax authority.
If there is more than one shareholder, you must have a shareholder agreement. This is absolutely imperative. This agreement covers ownership and voting rights, control and management of the company, making a provision for the resolution of any dispute between shareholders, protecting the competitive interests of the company, what happens upon the death of a shareholder, etc. I have seen many corporations go to hell when there’s no shareholders’ agreement in place. And, in the end, if a shareholder dies or there’s some other dispute, would you rather buyout the shares, or be stuck with a shareholder you don’t want.
Are you Planning to Give Gifts to Your Employees this Holiday Season? Do You Know What is Taxable?
How and When to File a Record of Employment
Accounting Terms Every Businessperson Should Know
Why Your Company Needs a Minute Book
Starting Your Own Business – What It’s Not!
Tidbits – I have a customer claiming they’re exempt from GST/HST?
Tidbits – What information do I need from a new hire?
Don’t File Late, Watch That Date!