There are two main types of business ownerships in Canada: small business and corporation.
Also known as entrepreneurship, or self-employment. To become an owner of small business you need to do one of the following:
- Register a Master Business License with the Ministry of Consumers or,
- Register a business number with Canada Revenue Agency or,
- Earn money while no tax withheld at source
Explained in detail:
1. Master Business License is a registration of your business name with the government of Ontario. It is an official intention to operate a business in Ontario under the registered name. On-line registration costs $60. The name registered will belong to the owner for five years. After five years it expires and it can be renewed for the same fee of $60 for another 5 years. Any invoices, sales receipts should indicate your company name, and payment from clients should be made in company name as well. You will need to open a business bank account in that name.
Income from those activities must be reported on personal tax return. You are allowed to claim business related expenses. A sample list of expenses can be found here.
2. Business number with Canada Revenue Agency (CRA). If you register a business number, GST/HST number, export/import number or payroll account with Canada Revenue Agency (CRA) - CRA will assign you a business number, at which point you confirm that you have intention to do business in Canada. Registration is free. It never expires, unless you want to close a business number account.
GST/HST registrants will be required to collect 13% HST (in Ontario) on all sales and services. This money must be forwarded to the CRA. You are allowed to claim HST on your business expenses to reduce amount payable to CRA. Also you need to submit reports annually or quarterly: calculations of amount paid which are based on sales, HST collected on sales, input HST credit (HST in expenses), installments paid and any adjustments made. You never charge customers HST if you do not have GST/HST number registration with CRA.
Payroll account is required if a business has employees. You will do calculations of payroll and remit taxes withheld from employee's pay cheque to CRA on monthly base. (See more in Corporations).
Export/import account registration will be required if business exports or imports goods from/to Canada. You submit reports only when goods cross the Canadian border.
If you never created a corporation and registered one of those account with CRA, that business number will be tied to your SIN. Income and expenses from such activities should be reported on a personal tax return.
3. Making money without any tax withheld at source is also considered self-employment/ small business activities. If you are self-employed and make less than $30,000 in any year you are not required to register GST/HST. If you provide such services using your own name, you are not required to register Master Business License, but you are not prohibited from doing business. As in the categories above, all income should be reported on personal tax return.
Please remember some activities require licensing or registration with professional organizations, commissioners or ministries. Examples: medical professionals, teachers, many occupations in financial services, trade persons like electricians, plumbers etc. Municipalities also require licensing for taxi drivers, food providers, nail salons etc.
Corporation is a separate legal entity, owned by shareholders of the corporation, whose liabilities are limited to their investment. Directors of the corporation are responsible for business affairs of their corporation, but not liable by personal assets.
Businesses can be incorporated at provincial or federal level. Provincial corporation's normally have offices in the province it was incorporated. Federal corporation's can have permanent establishments in any province. But in both cases companies can have customers anywhere in Canada and abroad.
There is a one-time government fee $362.15 to register an Ontario corporation.
There is a $200 fee to register a federal corporation, as well as a $20 fee that must be paid every year along with filing an annual return to Industry Canada to keep the corporation active.
If the corporation wants to have its own name, research should be done prior to the registration to make sure the proposed name is not use by any other business in the jurisdiction you plan to incorporate. NUANS report reserves a proposed name for up to 90 days. It is also useful to check Trademarks database that the proposed name is available for use.
Registration of a corporation can be done within one business day. The Article of Incorporation is an official "Birth Certificate" for a corporation. CRA will automatically assign a business number to a new corporation (which is comparable to the SIN each resident of Canada has). Once a corporation has both the Article of Incorporation and business number with CRA, directors can open a business bank account.
What is next?
Welcome to the world of business! Make money, pay taxes, play by the rules and be successful!
Some corporations have steady income and many customers from the first day. Other corporations try to do business, but with not much luck for years. No matter what, each corporation should file a corporate tax return with the CRA once a year within 60 days after the end of corporation's fiscal year (within 90 days for small corporations).
Newly created corporation can choose the year end. It can be end of the month prior to anniversary of incorporation or December 31. For example, if company was incorporated on July 4, then year-end can be June 30 or December 31 of each year. When a corporation files its first tax return it indicates year-end on the tax return.
Corporation should open the following accounts with CRA:
GHS/HST account must be opened, if company made $30,000 or more in any year. Once GST/HST registration is done, company must collect 13% sales tax (in Ontario) from customers and forward it to CRA less GST/HST in business expenses.
GHS/HST registration can be done voluntarily, even if a company is not making any sales. The registration will allow an HST refund in business expenses.
If a business hires employees, a payroll account should be registered with CRA. You are required to withhold CPP (Canada Pension Plan), EI (Employment insurance) and taxes from employees' pay cheque. Employer has to add employer's part of CPP and EI and forward withheld taxes plus added CPP and EI to CRA within 15 days after the end of the month.
Owners of the corporation can pay themself for the work in business salaries (including bonuses) or dividends. You cannot just take money from the corporation and show them on your personal tax return as self-employment income. CPP and taxes should be withheld like it would be from any other employee of the business. Owners and direct relatives are exempt from paying employment insurance (EI) premiums to EI fund. At the same time you can enter into the contract with Service Canada, pay EI premiums for minimum 2 years to be eligible for maternity or parental benefits, sick benefits and compassionate care benefits.
When an employee leaves a company for any reason, an employer has to issue within 10 days a Record of Employment (ROE). ROE states number of hours the employee worked for your business in the last 52 weeks, amount of money received, reason he/she left the company. ROE will be required for ex-employee to apply for unemployment benefits, if they are eligible.
After the end of calendar year, an employer has to prepare and issue T4 slips to employees. T4 slip states: gross income an employee received in a calendar year and amounts of CPP, EI and Taxes withheld during the year. The business has to issue T4s by the end of February and must also submit to the CRA all copies of T4 slips the business issued plus T4 summaries. T4 Summary summarizes the number of employees you had in that year, total amount of CPP, EI and taxes withheld, CPP and EI added and amount of payroll remittances paid to CRA.
Export/Import account registration will be required if you export or import goods from/to Canada. You compete and submit reports only when goods cross the Canadian border. Any GST/HST paid on imported good can be claimed as input GST/HST on GST/HST return form.
CRA Accounts overview.
CRA will assign your corporation a 9-digit business number XXXXX XXXX
When additional accounts will be registered, your business number (BN) will remain the same and a suffix will be added to the end of your BN:
Corporate tax account XXXXX XXXX RC0001
GHS/HST account XXXXX XXXX RT0001
Payroll account XXXXX XXXX RP0001
Export/Import account XXXXX XXXX RM0001
WSIB - Workplace Safety and Insurance Board of Ontario, requires most businesses that have manual or physical nature of work to register with them. In case of accident happening at work, an injured worker will receive some benefits from WSIB until they recover. An employer has to pay premiums to WSIB based on the gross salaries of their employees.
Canada Revenue Agency
Master Business License registration on-line
IE benefits for business owners.
Salary vs. Dividends
Customs broker for export/import needs:
Directors' Liability Under the Canada Business Corporations Act:
Contact Natasha directly if you want to register:
- Small business
- Master Business License
- GST/HST, payroll, export/import number
- NUANS report
- Ontario corporation
- Federal corporation