Business Advisory

Even businesses that have not officially registered their business because they earn less than $30,000 a year must fill out an income tax return. Any business income, whether earned as an employee, sole proprietor, partner, owner, freelancer, or contractor, must be reported. This also includes any income from other countries.

Sole proprietorships and partnerships use the T1 income tax return, as well as Form 2125, the Statement of Business or Professional Activities, which reports your business income. The T1 is also used by home business proprietors to report their income as well as independent contractors and freelancers. As long as the business is not a corporation, the owner fills out a T1 income tax return.

The T2125 form is designed to lead you through the process of calculating your "true" business income—that is, what's left when you've taken away your business expenses from the original amount you made.

To start your calculation follow these steps:

• Calculate your total revenue.
• Subtract your business's expenses and operating costs from your total revenue. This calculates your business's earnings before tax.
• Deduct taxes from this amount to find you business's net income. Your net income will be your business income.

If your business makes at least $30,000 a year, you are not considered a small supplier and must register for a GST/HST number. When calculating your business income, add the amount of GST/HST to your gross sales or fees to calculate your adjusted gross sales or adjusted professional fees.

When registering for a GST/HST number, have the following information on hand:

• Effective date of registration: Your effective date of registration is usually the day you stop being a small supplier. If you request your GST/HST account when you are still a small supplier, your effective date of registration is usually the date of your request. It may also start up to 30 days before that day.
• Fiscal year for GST/HST purposes. Usually, your fiscal year for GST/HST purposes is the same as your tax year for income tax purposes.
• Total annual revenue from your taxable sales, leases, and other supplies including those that are zero-rated, as well as the taxable supplies of all your associates. If you are a new business, you may give a reasonable estimate of your income for the year.
• Basic information includes personal information, such as your last name, SIN, date of birth, and address, as well as business information, which includes your business name, BN, type of business or organization (sole proprietorship, partnership, corporation, or registered charity), name and SIN of all owners, physical and mailing address, and description of your business activity.

The rate that you charge will depend on the province or territory in which the supply is made. The current rates are: 5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon 13% (HST) in Ontario 15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island For example, your store in Vancouver, B.C. delivers a mattress to your customer in Toronto, Ontario. You charge 13% HST on the sale because the place of supply is Ontario.

You are responsible to hold the GST/HST in trust until you send it to the CRA. This includes the collectible tax that you charged and have not collected yet. At the end of each reporting period, you need to complete and file a GST/HST return and remit the net amount of GST/HST to the CRA. You must keep the records that will support the information you provide on your GST/HST returns. Your records must include:

• the amount of GST/HST you collected
• the amount of GST/HST paid and payable on your eligible business purchases and expenses
• the amount of tax to be refunded, rebated, or deducted from your net tax
• a description of the goods and services in enough detail to determine whether or not GST/HST applies.

  Payroll Tax Account

1. Does my small business need to have a payroll tax account?

If your business will have employees (including yourself) you must also register for an RP Payroll account. Again, you can open a payroll account by phoning the CRA business line. The payroll number will be the same as your business number, however it will end in RP0001.

If your business will have employees (including yourself) you must also register for an RP Payroll account. Again, you can open a payroll account by phoning the CRA business line. The payroll number will be the same as your business number, however it will end in RP0001.

Here are the most common CRA business expenses a small business owner can claim a deduction:

• Accounting & Legal fees (related to business activities)
• Advertising expenses
• Automobile expenses (business use of a vehicle expenses and Capital Cost Allowance deductions on the purchase of a vehicle - see What Motor Vehicle Expenses Can You Claim on Income Tax in Canada? and How to Claim CCA (Capital Cost Allowance) on a Vehicle Bought for Business Use)
• Bad Debts (moneys owed to you that you are unable to collect)
• Bank Charges
• Business Taxes & Business Licenses
• Cloud Computing Service Provider Fees
• Collection Agency fees
• Conference and Convention fees
• Expert Advice (consultant fees, for instance)
• Interest expenses (on money borrowed to run your business)
• Insurance expenses (for buildings, machinery or equipment)
• Internet Service Provider (ISP) fees (for business use)
• Membership Dues (for business-related organizations, also includes subscriptions to business-related publications)
• Meals and Entertainment expenses
• Office Rent/Lease expenses
• Office Supplies expenses
• Postage & Courier expenses (shipping and delivery)
• Private Health Service Plan (PHSP) premiums - you can deduct PHSP premiums you pay to insure yourself or any member of your household as long as you are actively involved in your business and it provides more than 50% of your total income
• Promotion expenses
• Property Taxes
• Repair & Maintenance expenses
• Salaries of employees – including salaries of family members (employing family members is an excellent way to save on taxes by income splitting). Note that you cannot pay family members a salary over and above what you would pay someone else to do the job.
• Business Software and/or Applications - (for example, office suites and tax preparation and accounting software)
• Telephone/Telecommunications expenses
• Travel expenses
• Utilities

Registered Retirement Savings Plans (RRSPS) are the best way to reduce Canadian income tax deductions for small businesses that are structured as sole proprietorships or partnerships. Determine the RRSP contribution limits and how to time your RRSP contributions for maximum income tax impact.

The purpose of an employment contract is to ensure that both you and your employer have a clear understanding of what is expected during the term of employment. This document can also serve to eliminate any disputes which may arise at a later date. It also helps you to understand what your rights are under the law. Both the employer and employee are bound to the employment contract until such time that it ends due to notice given or a change in terms by either party.

An employment contract can be used when terms for part-time, fixed employment or permanent full-time are needed. It can also be used when you’ve been hired by a human resources manager, recruitment officer or an employer.

The Agreement of Purchase and Sale (“APS”) is a binding contract between the purchaser and seller that obligates the purchaser to buy and the seller to sell assets or shares of a corporation subject to the terms and conditions in the APS.  The APS will include terms such as the purchase price, representations and warranties, conditions, and the closing date. When a purchaser is buying assets, the APS is called an Asset Purchase Agreement; when the purchaser is buying shares, it is called a Share Purchase Agreement.

The purchaser will typically have a conditional period anywhere from five to twenty days after the APS has been executed to perform due diligence and secure financing. The following are the most common conditions required before closing:

• Financial and Legal Due diligence: Financial due diligence involves reviewing the financial statements of the target business to ensure that it is a viable business and the financial position of the business justifies the purchase price. Whereas the purpose of legal due diligence is to assess the risks and obligations of the business. For example, the purchaser will likely assume the existing lease of the business on an “as-is” basis so it is important to review the lease to identify any red flags.
• Financing: The transaction will often be conditional on the purchaser securing financing on satisfactory terms and conditions. At this stage, the purchaser will likely have had at least preliminary discussions with lenders regarding financing this transaction.
• Landlord’s Consent: If the business operates out of a leased premises, the parties will be required to obtain landlord’s consent. If the transaction is structured as an asset sale, the landlord will have to consent to assigning the existing lease to the purchaser. In a share sale, the landlord will have to consent to the change of control of the corporation. It is important to review what is required under the lease.

A purchase agreement (APS) is merely an agreement to sell the business at a certain date in the future. On the closing date, closing documents must be exchanged between the purchaser and seller in order to effect the sale. For example, a Bill of Sale is a closing document that is required to legally transfer the assets of a business from the seller to the purchaser on the closing date. The APS alone does not transfer the assets – it merely states that ownership of the assets is to be transferred by way of a Bill of Sale on closing. The business will also require various permits or licenses for its specific type of operation.

That depends on the transaction, but potentially there are many closing documents required to close a deal. They include the following for a share sale: Consent to transfer of Shares, New Share Certificate in favour of Purchaser, Resignation of Vendor as director and officer, Section 116 of the Income Tax Act statutory declarations by the Vendors and Pas to their age and Canadian residency, Undertaking by Vendors’ solicitors to withhold closing funds to pay off debts and obligations, and many more.   Closing documents required in an asset sale include the Bill of Sale and General Conveyance or Assignment, Purchaser’s Certificate of Representation and Warranties, Vendor’s Statutory Declaration re residency, Non-Competition Agreement, Statement of Adjustments, and many more.

Almost all businesses in Canada must register their business name in their respective provinces or territories except for sole proprietorships that use only the owner's legal name with no additions. All other forms of business ownership, including partnerships, must register their business names.

The basic procedure to register a business name for a sole proprietorship or partnership is to conduct a business name search, fill out the appropriate business registration form, and pay your fee. The procedure to register a business name for a corporation is more involved. Besides conducting a name search and getting a NUANS report, if you wish to set up a named corporation, you will also have to prepare Articles of Incorporation, a cover letter and an incorporation application to go along with your fee.

You must renew your business’s name it every five years; however, you can renew a registration within 60 days after it expires.

In order to complete registration of your business name, you will need to provide the name and address of the business where legal papers can be served, as well as the name and home addresses of each partner where a partnership has 10 or fewer partner. You will also need to provide a description of the business activity being performed; and a valid email address if you are registering via email.

No it does not. Registering your business name does not mean that you have exclusivity. That will require you to trademark your name. While the Business Names Act does not prohibit you from registering a name that is the same or similar to others, you may find yourself in a lawsuit. That is why it is best to conduct a names search first to make sure that no one else is using the name that you want.

You can register your business name online, mail, or register in person. To register online, you can register with the following services:

1. Service Canada’s Business Name Registration Service
2. Service providers Cyberbahn, ESC Corporate Services Ltd, and OnCorp Direct Inc. or
3. CRA’s Business Registration Online Service

If registering in person, go to the following address: Ministry of Government and Consumer Services Central Production and Verification Services Branch 375 University Avenue, 2nd floor Toronto, ON M5G 2M2 If registering by mail, write a cheque or money order for $80, made out to the Minister of Finance, and mail to the following address: Ministry of Government and Consumer Services Central Production and Verification Services Branch 393 University Avenue, Suite 200 Toronto, ON M5G 2M2

No, it will depend on where you live and the nature of your business. Every province and municipality within a province will have their own regulations. Biz Pal and the City of Toronto are tools that can help you find out whether you need a business license to operate your business.

You will need the following to receive a business license in Canada

• a business location/address;
• a copy of provincial business name registration
• Two pieces of government-issued identification:

o  proof of work status, such as a Canadian Passport or Citizenship Card, Permanent Resident Card, Work Permit, Canadian Birth Certificate; and

o  a valid photo ID such as a Driver's License, Photo Identification Card, Canadian Passport. Note that Health Cards are not accepted.

Certain types of home-based businesses, such as daycare centers, hairstyling, legal services, or financial advisor services, require state or federal professional licensing or certification. Contact The Canadian Information Centre for International Credentials to obtain a list of all occupations or businesses that require professional licensing.

Not all businesses require a business number. Registration is mandatory if your business makes $30,000 or more per year. You can register your business with Business Registration Online. A number is necessary if you require:

• GST/HST
• Payroll
• Excise
• Corporate income tax
• Import/export account

If you are operating a sole proprietorship, you will receive a Masters Business License when you register for a business name. Your business name must be renewed every five years as it will expire. Please note a Master Business License is not issued for registration of a business name for a Partnership/Limited Partnership or for an Ontario Limited Liability Partnership, Extra-Provincial Limited Liability Partnership or Extra-Provincial Limited Liability Company.

If your business sells goods, whether online or not, you may be required to have a Sales Tax Permit, sometimes referred to as a Vendor’s Permit. In Canada, businesses are obligated to register and collect Goods and Service Tax (GST), Provincial Sales Tax (PST), or Harmonized Sales Tax (HST) if they are selling over $30,000 CAD in the last four quarters.