The corporation is the most basic and common structure for small and medium business (and of course for large corporations). The main non-tax advantage of incorporation is limited liability for the owners. Specifically the shareholder/owner is not liable for any debts of the business (unless personal guarantees are provided). The main tax advantage is that profits from an active business are taxed at a lower tax rate than if earned directly by an individual entrepreneur. The overall rate of tax is the same once the profits are taken out by the shareholder as dividends and the shareholder pays tax on those dividends. This is referred to as integration of the business and personal tax rates. Another tax advantage of a corporation is that on sale of shares of certain Canadian corporations (referred to as Qualifying Small Business Shares) there is a lifetime capital gains exemption of up to $800,000 (in 2014, indexed as of 2015), meaning that there is no tax on that amount of capital gains. There are tests to be met to qualify, most notably the corporation must have active rather than passive assets. There are tax planning techniques, referred to as purification transactions, to ensure that the corporation meets the capital gains tax exemption criteria. Many professionals are now allowed to incorporate, and our experienced Canadian business lawyers can incorporate regular or professional corporations.
Did you know that the CRA completes approximately 70,000 GST/HST audits every year?
Going through a GST/HST audit from the CRA can be incredibly stressful, time consuming, and can end up being very costly. Rotfleisch & Samulovitch P.C. has years of experience helping companies navigate the CRA audit process.