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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. 

CRA Auditing – HST New Housing Rebates

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Goods and Services Tax/Harmonixed Sales Tax (GST/HST) New Housing Rebate

Goods and Services Tax/Harmonized Sales Tax (GST/HST) New Housing Rebate

The Canadian Market

The housing market in Toronto and the suburbs has been booming over the last several years. This has allowed investors from all over the world to cash in. The strategy was to purchase a newly constructed home or condominium unit from the builder and sell it a few months later for profit. This strategy seemed like people had finally figured out how to pull ahead in this struggling economy. For some this had even become a full time job with endless rewards. With the Canada Revenue Agency (CRA) only taxing half of the capital gain this was the right way to retain your money.

HST New Housing Rebate

With the CRA looking to increase tax revenues they started reviewing the New Housing Rebate applications  and determined a large number of people had claimed the GST/HST New Housing Rebate incorrectly. They were able to determine a large number of investors never even moved into the newly constructed property but they had sold it few months after they took possession. In this case they would not qualify for the rebate and they would be required to pay the HST balance to the CRA. A lot of investors had already sold the property and had failed to collect HST on the sale, which would mean they were still required to pay back the HST. This was a sticky situation with some investors on the hook for over $24,000. In some instances the CRA waited 3 years to reassess the taxpayer. Read more

How to setup a business in Ontario?

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What type of structure is right for you?

How to setup a business in Ontario?

Setting up a business can be an overwhelming task with a lot to comprehend. It all starts with a dream and a vision, but how do you turn that dream into reality. The dream of becoming your own boss and having the freedom to make your own decisions can be a complicated one at the beginning. Once you have determined on the actual business and its inner workings, you will have to move on to the next step of executing that business. This is where a lot of people get stuck and don’t really know where to go next.

In this article I will explore and shed light on several different business structures available in Ontario. I will also explain how to be in compliance with Canada Revenue Agency (CRA) tax obligations.

The three most common structures are Sole proprietorship, Partnership, and Incorporation.

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Voluntary Disclosures – Should I Apply?

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Should I use the VDP program offered by the CRA? Is this program right for me?

Should I use the VDP program offered by the CRA? Is this program right for me?

What is Voluntary Disclosures Program (VDP)?

The VDP is a Canada Revenue Agency (CRA) administered program which allows taxpayers to disclose or amend historical tax returns due to inaccuracy or unreported tax information. Under the program the CRA will not charge penalties or prosecute the taxpayer. The program also promises to grant partial interest relief if you are accepted under the program.

A disclosure must meet the following four conditions in order to qualify as a valid disclosure:

  1. Voluntary – The disclosure has to be voluntary. You cannot apply for this program once the CRA starts to audit your books and records. You will not qualify for this program once the CRA contacts you.
  2. Complete – The taxpayer must provide complete and accurate information for the period you are applying for.
  3. Penalty – There has to be situation where a penalty would apply to the taxpayer. This usually constitutes that there is taxes owing, otherwise the use of this program would be useless.
  4. One year past due – The disclosure has to be one year past due.

Should I Apply?

After briefly reviewing the details of the VDP program everything looks great on the surface. It had finally seemed like the CRA had implemented a program which would allow Canadians to correct past period errors without hefty penalties and interest.

Before we can fully start utilizing the program there are ambiguities that the taxpayer must understand. One of the most common misconceptions is that the CRA will not charge penalties or interest if you make a submission under this program.

In the VDP publication the CRA states that if the CRA accepts a disclosure as having met the conditions set out in this policy, it will be considered a valid disclosure and the taxpayer will not be charged penalties or prosecuted with respect to the disclosure. However, the CRA  contradicts itself and states that the Minister does not have to grant relief under the VDP provisions. Each request will be reviewed and decided on its own merit. If relief is denied or partly granted, the CRA will provide the taxpayer with an explanation of the reasons and factors for the decision.

When determining if interest and penalties should be charged, the CRA will assess on a case by case basis. This decision is most likely made by the CRA agent assessing the case.

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