What is a professional corporation?

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Professional Corporation

Professional Corporation

What is a professional corporation? 

A professional corporation operates much like a business corporation with few exceptions. A professional corporation has to abide by the regulations set by the Business Corporations Act (Ontario) and by the respective governing body. A professional corporation  can-only carry on activities of its profession. A professional corporation must meet the requirements of its governing body and receive a Certificate of Authorization or equivalent.

Many professionals are allowed to operate their business as a professional corporation.  Examples of professions that can operate under a professional corporation:

 Accountants  Lawyers  Medical professionals
 Engineers  Architects  Social Workers
 Veterinarians  Pharmacists  Chiropractors

Historically professionals have operated through a sole proprietorship or partnership which limits tax planning  and results in higher taxes (see “How to setup a business in Ontario” for more in depth discussion). Professionals have lobbied the provincial governments which have allowed them to incorporate their practices.

Does a professional corporation have limited liability? 

In “How to setup a business in Ontario” we discussed that a corporation is a separate legal entity and it has limited liability. A professional corporation is slightly different and does NOT have full limited liability (exception for architects and engineers). A professional corporation only offers limited liability in certain areas. When it comes to business debts, the shareholder is only liable up to his or her investment in the business.  However, in other circumstances such as malpractice, the corporate veil is lifted resulting in unlimited liability.

 

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Capital Losses vs Non-Capital Losses

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Capital Losses vs Non-Capital Losses

Capital Losses vs Non-Capital Losses

 Capital Losses Vs. Non-Capital Losses

 Capital Loss

A capital loss arises when you sell a capital property you own for less than its adjusted cost base. A capital loss can be carried back three years and forward indefinitely. The inclusion rate for a capital loss is as follows:

Year Inclusion Percentage
Before 1988 50%
1988 and 1989 67%
1990 to 1999 75%
Jan 1 to Feb 27, 2000 75%
Feb 28 to Oct 16, 2000 67%
Oct 17 to Dec 31, 2000 50%
2001 to present 50%

Non-Capital Loss (Business loss)

A non-capital loss arises when you incur  any loss from employment, property or a business. The carry-forward periods are:

Year of Loss Carry Forward Period Carry Back Period
Taxation years ending March 22, 2004 7 Years 3 Years
Taxation years ending after March 22, 2004 10 Years 3 Years
Taxation years ending after 2005 20 Years 3 Years

Capital Losses vs. Business Losses 

A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. In the case of Mr. Prochuk vs. Queen he tried to argue his losses were business losses and could be used to reduce other income. Mr. Prochuk was not successful in arguing his claim because he did not meet the criteria for a business loss. Mr. Prochuk was an engineer turned investor, he should have considered the following seven factors to determine if his losses were capital or non-capital.

The factors to be considered for a investment transaction to determine the type of loss:

  1. The number of transactions
  2. The intention of the purchaser when buying the securities
  3. The length of time that the securities are held
  4. The quality of the securities
  5. The time devoted to stock market transactions
  6. The extent of borrowing
  7. The taxpayer’s expertise or special knowledge in the securities market

The court concluded that Mr. Prochuk had acquired his investment for a long-term and was a passive investor, therefore his losses would be capital losses not business losses.

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SDVC LLP Chartered Accountants is an accounting firm located in Mississauga, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for CRA Audit help, tax planning, review engagements, and audit engagements. 

Capital Gains vs Business Income

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Capital Gain vs. Business Income

Capital Gains vs. Business Income

Capital Gains vs Business Income

As indicated in our previous articles, the housing market in Canada has attracted many investors. This has allowed real estate investors to make a quick profit. The popularity has also been fueled by the preferred tax treatment on capital gains. In Canada only 50% of the capital gain is taxable at your marginal tax rate.This has allowed taxpayers to shelter large portion of their income from the tax man. However, you should be aware that not all income qualifies as a capital gain. It could be taxed as business income, in which case 100% of the amount is subject to tax.

For example, to determine if the rental income qualifies as a capital gain or business income the following Six factors are considered as cited in Ayala v. The Queen:

  1. The nature of the property sold;
  2. The length of time the taxpayer was in possession as owner of the property;
  3. The frequency and number of operations carried out by the taxpayer;
  4. The improvements made by the taxpayer to the property;
  5. The circumstances surrounding the sale of the property; and
  6. The taxpayer’s intention at the time the property was acquired, as indicated by the taxpayer’s actions.

In the case of Montreal tax payer who sold six of her real estate properties and reported the income as a capital gain, her appeal was denied and income was assessed as business income. The judge in this case concluded that the Montreal taxpayer was probably and likely had acquired the properties “for the purpose of reselling them at a profit at the earliest opportunity rather than considering them as long‑term investments.” The taxpayers appeal was denied and her income assessed as business income forcing her to pay tax on 100% of the sale proceeds.

These rulings will impact many different business and industries. It is critical taxpayers seek adequate legal and tax advise when making decisions.

Capital Losses vs Business Losses 

When it comes to capital losses vs business losses the opposite is also true. A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. Read our article on capital losses vs business losses to gain more insight.

Capital Losses vs. Business Losses

SDVC LLP – Chartered Professional Accountants  is an accounting firm located in Mississauga, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for Tax Help, Personal Tax, Corporate Tax, Year End Financials, Review Engagements, Audit Engagements, Accounting & Estate Taxes.

Small Business Accountant Mississauga Brampton Oakville

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Small Business Accountant

Small Business Accountant Mississauga Brampton Oakville

 

We help businesses in Mississauga, Brampton, and Oakville 

We live in an ever changing global economy where the dynamics of business have been revolutionized by the internet. Small business owners face many new risks in this economy. This is why hiring an accountant for your small business is no longer about finding someone good at number crunching. The services provided by an accountant have changed vastly over the last 50 years. Business owners need services which are much more enhanced and cumbersome from their accountants.

Our firm understands the needs of small business owners in Mississauga, Brampton, and Oakville and we look below the surface to find solutions to your problems. We go above and beyond providing tax services to our clients, we improve financial health, reduce risk, and help increase overall profitability. We use our expertise and  help our clients stay competitive and ahead of the competition.

Some common questions that we receive from our small business clients include:

1. Can we contact you through out the year? How often should we be in touch?

Each business is different and each business owner is different. The number of meetings required with your accountant will depends on a lot of factors. Some business require more accountant involvement because of the reporting requirements or the sensitivity of the business. A small business needs to have open and frequent communication with its accountant. With our clients we use an open door policy and have  frequent communications throughout the year. We like to connect with our clients on a monthly basis to make sure all the questions and concerns have been addressed. With constant contact with our clients it helps us understand the clients’ business better which in turn helps us put together better cost cutting techniques.

We understand how frustrating it can be getting a hold of your accountant when you really need them. This is why we respond to business owner inquiries in a timely fashion. We understand delayed responses will have a direct impact on the business. We respond to emails and phone calls within the hour. We provide business owners with a direct line and the phone is answered by an accountant directly.

2. Can you help me grow my business?

We work closely with our clients and help small business owners expand and grow their businesses over time. By working closely with our clients we put in the right foundation from day one. We present unique financial strategies to minimize expenses and increase overall margins. From the initial consultation we identify key areas and help our small businesses owners focus on these areas to help grow their business.

3. When the CRA audits my books, can you help me?

The Canada Revenue Agency conducts periodical review and audits. The process can be frustrating, expensive, and time consuming. Handling a CRA audit or review correctly requires a lot of detail and expertise.  We stand behind our work and directly represent our clients, we become the face of your business and directly deal with the CRA. We have an in house Tax Lawyer who assists us in handling any CRA audit or review. We fully represent our clients giving them peace of mind.

4. What are the biggest tax mistakes small business owners make?

Small business owners have multiple roles in a business which leaves very little time to focus on accounting and administrative duties. This time constraint leads to poor record keeping.  To asses how your business is doing from month to month, it is vital to keep good records, which helps determine efficiency and profitability. Thorough and accurate records also helps prepare accurate tax returns. It is common that legitimate expenses get ignored because the business owner never documented them property. This is why it is very important to work with a competent accountant who can help you keep a good set of books. We can help you organize your books and maintain good set of accounting and financial records. We help our clients implement good accounting tools and software to record income and expenses.

 Small Business Accountant Mississauga Brampton Oakville

We have helped business and business owners all over Mississauga, Brampton, and Oakville with accounting and tax related inquires. Contact our firm directly for your business needs.

Book An Appointment
 

CRA Audit & Objections

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CRA Audit & Objections

CRA Audit & Objections

  CRA Audit & Objections

Challenge the CRA / Dealing with the CRA? Here’s what you need to know.

Every year the Canada Revenue Agency (CRA) audits thousands of small and medium size businesses and issues notices of reassessments.  Many times the result of these reassessments requires these businesses to pay up to thousands and sometimes millions in tax, interest and penalties.

Is there a chance that these CRA reassessments can be wrong? Yes! It is absolutely critical that business owners are prepared to challenge incorrect reassessments. Handling reassessments improperly can have serious financial implications for your business.

Here are five things that you should be aware of when you receive the CRA’s notices of reassessment:

  1. The CRA isn’t always right. Notices of reassessments and tax disputes are not necessarily an indication that the taxpayer, or the accountant, has done something wrong. If you feel the CRA has it wrong, as a taxpayer you have the right to challenge the CRA’s interpretation and application of the facts and law to ensure you are not paying more than you have to.
  2. Act on time. You must file a notice of objection to dispute a notice of reassessment. Generally, you must file a notice of objection within 90-days of the date that the CRA mailed the notice of reassessment. If you do not deliver a proper notice of objection within the 90-day period, you may apply for an extension of time to object. The CRA will consider applications for an extension of time to object if the application meets all relevant conditions and if it is filed within one year of the 90-day period. However, the CRA may deny your application for an extension of time and, therefore, it important to file a proper notice of objection within the 90-day period.
  3. The onus is on you. The normal reassessment period is three years for individual taxpayers and four years for corporate taxpayers. If the CRA issues a notice of (re)assessment within the normal reassessment period, the onus is on you to prove that the assessment is wrong in fact and law. You should be prepared to present factual and legal support for your position that the reassessment is wrong. If the CRA issues a notice of reassessment outside the normal reassessment period, taxpayers should understand the impact of this shift in the burden of proof. This is an opportunity to take advantage of the shift and make strategic decisions.
  4. Know what you are talking about. In addition to knowledge of the relevant legislation, the tax dispute process is governed by the case law, rules of procedure, the onus of proof, the standard of proof and the rules of evidence. In our experience, the party with the greater understanding of the legislation, case law and rules often has a significant advantage.
  5. Contact the right people for help.Clients often struggle to research and retain the right tax accountant and tax lawyer. We recommend that clients take the time to understand their options and speak to competent tax professionals.

This is an example where the CRA made a mistake and resulted in Mr. Irvin Leroux losing millions of dollars.

It was a million-dollar mistake that turned in to a 13-year battle. A British Columbia man lost almost everything in a tax battle with the Canada Revenue Agency. The CRA admits they were wrong, but now refuses to repay his money. His original documents were shredded by the CRA auditor.

The judge found that the auditors owed Mr. Leroux a duty of care and that they breached it in the manner in which they imposed penalties. However, the judge concluded that she was unable to find a causative link between that breach and Mr. Leroux’s losses.

Mr. Leroux had a legitimate position to put forward in saying that if the assessments had been done correctly in the first place, he might have been able to handle all the other problems he had.

The full case can be found here.

Contact SDVC LLP Chartered Accountants for all your CRA review and audit needs. Our team of tax accountants can professionally handle your file.