Incorporating a Company

If I ever find the mystical friend “Bob” that is out there giving people advice on everything from home improvement to taxes and accounting I am gonna kill him.  This is the person who has done everything, knows everything about everything and is always telling you what to do.  He is constantly whispering in your ear and giving you advice.  Now that I think about it he is probably related to “Murphy “, of Murphy’s Law fame (or infamy).  You know the “if something can go wrong it will” guy.

I am always happy to answer questions and I never talk down to anyone.  I believe there are no stupid questions, only stupid answers.  But for goodness sake if you ask me a question (as an accountant and tax expert, I don’t know squat about plumbing) then please don’t tell me that “Bob” or “Murphy” said that you can do something else.  Anyway we were going to talk about incorporating a company.  There are many reasons to do this which I will cover eventually.  For now let’s look strictly at the process.

The reason I am so pissed at BOB and MURPHY is because they tell people to get incorporated but stop there.  After you go and get your corporation, there is still more work to do.  Here is a short list:  Cancel existing GST number, Get corporate bank account, get CRA to issue you a corporation number (Business Number, GST number, and maybe payroll) (No you can’t just use the GST number from your other business), find a decent accountant, learn book keeping or find a good book keeper, Start invoicing using your corporate name and NEW GST number (Again I reiterate    No !!!!!    you can’t just use the GST number that you already have , deposit all revenue into the corporate bank account not your personal.

Does your head hurt yet?  Murphy and Bob never tell anyone to do all these things.  They just say get incorporated.  Then you continue merrily on your way doing exactly what you did before, thinking you are incorporated.  Guess what?  Unless you do the paperwork properly and act accordingly you have a company but you are not using it, which means you are not protected from liability like you thought, and you don’t get to take advantage of the tax planning and tax saving opportunities.

I have clients that got incorporated because Murphy told them to.  They didn’t bother to tell me, until two years later.  What a screw up.  Accounting for corporations is different than proprietorships (self-employed people who are not incorporated).  You have to file separate tax returns.  Corporations file a return, and you also have to file a personal return come April (just like before).  The corporate tax return can be based on a year that does not run January to December.  This has tax advantages that we will discuss another time.  A corporate tax return will cost you between $500 and $50,000 depending on how complex it is, whether you have done the book keeping, and myriad other factors.  Don’t cheap out.  You do get what you pay for.  If done correctly you can legally pay less tax with a corporation than if you did the same work as a proprietor.  Again this is what you are paying for when you get someone good to do your taxes.   Yes, don’t be cheap, but do not overpay either.  Chances are that you do not need an audit or review engagement.  You probably only need what is called Notice to Reader.  Make sure you know what you need.  Here is a hint public companies need audits (think stock exchange).  Banks sometimes require audits and reviews if you want a loan, but it is usually only for multimillion dollar loans.  So again you probably can go with the cheapest option, which is Notice to Reader.       In the next installment we will look at how to pick a year-end (yes you get to choose).  Like in the Holy Grail movie, you must choose wisely !!!!!