Company Registration in Canada

A sole proprietorship is informal and easily created, which is why it is the most common structure chosen by new businesses. In this structure, the business and the operator are one and the same in the eyes of legal and tax authorities.

Tax law treats a sole proprietorship as an income source for the proprietor and therefore requires that the business’s financial details be listed in a separate section of the personal income tax form.

In Canada, a partnership is similar in nature as sole proprietorship, but instead of one proprietor there are two or more. As with a sole proprietorship, there is no legal structure for a partnership.

However, partners usually have some type of contractual agreement that governs, in percentage terms, the sharing of revenues, expenses and tasks. When preparing their taxes, the partners apply those same percentages to their income and expenses. The owners or partners can individually bind the partnership with assets and obligations, so it is important to choose partners that fit with the organization, its goals and values.

Corporations are more complicated legal structures compared to sole proprietorships or partnerships. Incorporation creates formal ownership shares, which produces a taxation and legal distance between the company and the shareholders. This in turn has tax advantages for the owners, who are usually paid as employees of the corporation.

Corporations provide some liability protection for the corporation’s debts and offers some measure of protection for a company’s name. Company officers and shareholders may come and go, but the corporation exists until it is wound down. Corporations must keep meticulous records and report their financial situations to competent authorities yearly. Therefore, their financial statements must be audited annually by chartered accountants.

When going for company registration in Canada, this form of corporation can be utilised. When starting a federal corporation under company registration in Canada, the laws of Canada would be applicable to the company and is good for protecting your company name across Canada.

Canada is divided into thirteen provinces or territories. Each territory has its the local laws which would be applicable for starting a business in Canada. One can choose only to register provincially, if one plans to do most of your business within your province.

The basic rate of Part I tax is 38% of your taxable income, 28% after federal tax abatement. After the general tax reduction, the net tax rate is 15%.

For Canadian-controlled private corporations claiming the small business deduction, the net tax rate is 9%.

The corporation's tax year is its fiscal period, which cannot be longer than 53 weeks (371 days). Corporations should use the date of incorporation as the tax year start. For all subsequent returns, your tax year start will be the day after your tax year-end. File your return no later than six months after the end of each tax year. The tax year of a corporation is its fiscal period.

Any payment received for services provided in Canada is subject to a 15% tax withholding, which must be remitted to the CRA by the person making the payment. This withholding is a payment on account of the corporation's potential tax liability to Canada.