Starting a New Business in Red Deer
& Central Alberta
So you are starting your own business in Red Deer or Central Alberta...
We are just a phone call away, and near by to help you figure it out.
In general terms, there are two avenues to consider when starting a business: Incorporation which creates a separate legal entity or Proprietorship / Self-Employed which is an extension of personal taxes.
Incorporation Overview
Incorporation involves setting up a separate legal entity to which you and possibly others will be shareholders. In the tax department's view, you and your corporation are two separate tax entities. It is possible to register a corporation by yourself at a corporate registry office but we would recommend you use the professional services of a lawyer to ensure all legal documents are in proper order.
Some Advantages to Incorporation
The potential to limit one’s liabilities to the assets of the business (It should be noted that banks generally require corporate loans of small businesses to be personally guaranteed).
Ability to continue the business even as shareholders change due to death or retirement.
As a Canadian controlled private corporation, the small business tax rate on active business income is only 11% (2023 rate on first $500,000 of taxable income), so money left in the corporation provides a tax deferral.
Potential to take advantage of the $970,000+ capital gains exemption on qualified small business shares.
Potential to choose a non-calendar year-end, which allows you to spread remuneration (dividends, bonuses, etc.) over multiple calendar years, and choose the time when your tax comes due.
One of the first considerations to incorporation is the deferral of tax so if your business generates more income than you need to live on, incorporation may be the right choice for you.
Note incorporating generally does not provide a tax deferral advantage if the corporation earns investment or capital gains income.
It should also be noted that the annual cost of accounting and legal fees are generally higher than that of a proprietorship.
Call us and see how we can help you start your new business the right way!
Proprietorship Overview
A proprietorship is a type of business owned by an individual. If there is more than one individual involved, a partnership may be formed. The net income of a proprietorship is taxed on the individual’s tax return. Like a corporation, the proprietorship can deduct expenses related to the business revenue as allowed by the Income Tax Act of Canada. Unlike the corporation which pays a lower tax rate, the proprietorship income is taxed based on the individual’s marginal personal tax rates. Keep in mind that the lower corporate tax rate still involves a 2nd layer of tax as the shareholder will receive salary or dividends which will be taxed at their marginal personal tax rates, so the combined corporate and personal income tax on corporate income in theory—equals the tax on the proprietorship income.
What’s Next?
We would be happy to meet with you to discuss in more details the above considerations and other items like:
Obtaining a business number for tax purposes
When to register for GST?
How does payroll work?
How to keep accounting records?
And any questions you may have….
Keeping Accounting Records
With new cloud-based programs and applications available to business owners, maintaining accounting records can be as simple as taking a photo on your phone of your receipts!
We can set you up with programs like Receipt Bank, Sage, or Quickbooks that will allow you to keep accounting records and keep track of how your business is doing!
