How to setup a corporation in Canada?
A corporation is a separate legal entity which can be incorporated at the federal or provincial levels. A corporation is separate from its shareholders and must file a tax return annually regardless of the revenues it makes. A shareholder of the corporation is not liable for debts of the corporation. Although a corporation can be named in a lawsuit, the shareholders have limited liability to the capital contributed to the corporation.
What is a Federal (Canadian) incorporation?
Federal incorporation will allow you to operate and open branches all across Canada with the same name. The corporate name is recognized all over Canada. A Federal corporation is required to file a annual return every year as long as the corporation remains active. You will also have to register in the province you decide to operate in.
What is an Ontario (Provincial) incorporation?
Ontario or provincial incorporation will only allow you to have a branch in Ontario. If you decide to open a branch in another provide you will be required to incorporate there as well (the same name might not be available). With an Ontario corporation you are still able to sell your products across Canada.
How is a corporation taxed?
The income earned in the corporation is taxed at the corporate rate. The funds left over after paying taxes are considered retained earnings of the corporation. The retained earnings are distributed to the shareholders through dividends and are then taxed in the shareholders’ hands at their respective marginal tax rate.
What is the corporate tax rate in Ontario/Canada?
The corporate tax rate depends on the type of corporation setup and which tax credits it qualifies for. A corporation earning Active Business Income, which qualifies for the Small Business Deduction of 17%, will typically have a combined Federal & Provincial rate of 15.5%. The provincial rate is 4.5% and the federal rate is 11%.
|Small-business tax rate||General corporate tax rate||M&P Corporate tax rate|
|General Corporate Tax Rate||38.00%||38.00%||38.00%|
|General tax rate reduction||0.00%||-13.00%||0.00%|
|Federal Tax Rate||11.00%||15.00%||15.00%|
|Provincial Tax Rate (Ontario)||4.50%||11.50%||10.00%|
|Total Tax Rate||15.50%||26.50%||25.00%|
What are the setup costs?
The setup costs can range from $500 to $5,000 depending on the tax structure and legal advice needed. The basic costs are around as follows:
- Government of Ontario incorporation fee for filing the articles electronically – $300
- NUANS name search (for name corporations only) – $75
- Service provider fee – $50
- Form 1 initial return online filing fee – $50
Canada Revenue Agency (CRA) Requirements
When to file corporate taxes?
All corporations have to file a corporation tax (T2) return every tax year even if there is notax payable. If you are a CCPC the payment is due 90 days after the corporate year end and filing is due 180 days from the year end.
CRA Business Number
The CRA will open a business number for your corporation. The CRA will request that one of the owners or directors provide a social insurance number and major business activity.
You will be required to open a HST number if your revenues are going to be above $30,000 or you plan on collecting HST on the goods or services you provide. You also have the option to voluntary register for a HST number from the beginning. It is critical that you review the CRA’s GST/HST Guide to stay in compliance of the regulations.
This CRA tool can determine if you Should register for a GST/HST account?
You have to register for a payroll account before the first remittance due date. Your first remittance due date is the 15th day of the month following the month in which you began withholding deductions from your employee’s pay.