Working with your Corporation Part 4: Paying yourself

These are some of the main areas you must consider in ensuring the financial areas, of your business stay current in your corporation.  We will go further into some of the day to day operations and tracking of specific items in your corporate business in the next few blogs.  Let’s start with how you can pay yourself.

Paying yourself:

In paying yourself from your Corporation, you should first determine what your personal closed circle is on a monthly basis.  Your Closed Circle comes down to how much do you require on a monthly basis for your family/households’ Obligations, Necessities and Wants? Once you’ve determined this amount, you simply pay yourself that amount from the Corporation monthly.  As your company grows, there will be more income to deal with, and we will be there to work with you to structure other movements of cash flow and capital.  We will also discuss some of these options in our future blogs.  When paying yourself from your corporation, you will typically do it in 2 ways:

a.      Write yourself a cheque from the Corporation and deposit it in your personal account.

b.      Transfer funds from the Corporation to your personal account.

This is the way to pay yourself from a basic Corporate Structure (Just 1 corporation).  When you add holding companies and Trusts, the cash movement may be different.  For example, if you have a family trust, the Corporation would move funds to the Trust and then the Trust would move funds to your personal account. 

*Important Notes on paying yourself:

a.      Always put “draw” on the memo of the cheque or funds transfer.

b.      When transferring funds always print out the transaction for bookkeeping purposes.

c.      When both spouses are shareholders of the Corporation, have the Corporation write the cheques or transfers in both names and deposit it into your jointly held bank account. This is important for income splitting, which saves tax.

Working with your Corporation Part 3: Payroll & Year Ends

Here are some key details you need to know on payroll, year ends and corporate returns when you are working with your corporation:

Payroll remitting:

Payroll is typically remitted monthly, specifically on the 15^th of the following month.  Payroll remittances consist of Federal and Provincial taxes withheld from the employees, CPP – Employee and Employer portion, and EI – Employee and Employer Portion.  There are alternatives to payroll, so do inquire with us at Kustom Design.  If you do have payroll, never get behind as the penalty and interest can kill your business.

Corporate Year Ends: 

Corporations get to pick which month they’d like for their year end.  It is good to pick a month that works for the owner and the accountant and is best for deferring tax.  For example, if you own a business that requires inventory counts at year end, you would want the year end to be a month where you are not busy so you have time to do the inventory count and don’t lose important revenues. 

An example of deferring tax would be if your business makes most of its money in the summer, you’d want a year end that is just before the summer, so each year the taxes on the busy summer months aren’t paid until a whole year later (tax deferral).  Kustom Design can help you pick a beneficial Year End Date. 

Annual Returns (for Corporations):

In Alberta, we are required to file an annual return with the Provincial Government to let them know the Corporation is still active, who the current shareholders and directors are and the current address.  The cost is not a lot for this filing. However, if you do not file the annual return for your corporation, it can be dissolved which brings many negative consequences and costs.  Kustom Design can handle your Annual return filings each year, and it can be included in your package!

Working with your Corporation Part 2: Bookkeeping & GST

In this blog, we’ll go through some guidelines you should know about Bookkeeping and GST remitting. 

Bookkeeping:

Businesses must be looked after on a regular basis.  Bookkeeping should be done regularly, preferably no less than monthly.  Kustom Design has packages that include bookkeeping. However, you may also choose to do your own bookkeeping.  Many realize that is not a wise use of time when they could pay a small fee for monthly bookkeeping and utilize those hours marketing their business, or running their core business.  It is good, however, to at least understand the process of bookkeeping.  It is also very important to look at basic financials of your business each month to see if you are headed in the right direction or not.  Training and seminars on Bookkeeping are offered by Kustom Design for this purpose - to provide business owners with the basic knowledge of the bookkeeping process.  Whether you choose to do your own bookkeeping or have Kustom Design do your bookkeeping, we are here to help you!

GST remitting:

GST is required for a business when the business’ gross income is over $30,000 in a year, whether a sole proprietorship or a Corporation.  The business can also voluntarily register for GST.  GST can be remitted annually, quarterly or monthly for larger businesses.  This must be decided when you first apply for the GST number. It is best to file annually and make installments quarterly, if necessary.  The GST owing is simply calculated by the GST collected minus the GST paid on expenses (unless you are on quick method).  Kustom Design includes GST remitting with all 3 of our accounting packages.

Important Note on GST: Always keep your GST filings up to date!  If you fall behind CRA may Notionally Assess you, which means they pick an amount that you owe, and they will then collect it from you, even if it means freezing your bank accounts and trying to collect from your clients!

Next week, we’ll discuss payroll remitting, corporate year ends and annual returns. 

Working with your Corporation Part 1: Introduction

In our last blogs, we discussed the steps to incorporation.  Once you are incorporated, now what?  Now, it is time to run business, and there are some key things that you want to have in place.  At this point, you should have your corporation registered, your bank accounts set up and any required licensing registered.  Over the next few blogs, we will discuss some of the keys things you should know in working with your corporation.  We will talk about how you can keep up with your financial tracking and reporting, how you can pay yourself, how you can pay for your expenses and other important topics that will help you get on the right foot in working with your corporation.

Hopefully in your business plan, you’ve considered what things you can do yourself and what you will have to hire out.  The following are the key areas of the business that you must look at: Management, Marketing, Sales, Financial & Accounting, Customer Service, I.T. and Administration.

Right from the beginning of your business, you must have a plan to ensure you have a way to track the finances of the business, including Cash Flow, budget monitoring, Accounts Receivable and Accounts Payable.  Since you have a Corporation, proper and regular bookkeeping must be done in accounting software such as Quick Books. This could be you the business owner doing it, a bookkeeper or an accounting firm such as Kustom Design Professional Services Corp. This is different than a Sole Proprietorship where you can simply get away with adding up your income and expenses at the end of the year (although regular tracking is still recommended for Sole Proprietorships).  You must also have a plan for reporting to CRA and the Provincial authority on time each year. 

We will continue our blog series on “Working with your Corporation” in my next post.  Please check back for some helpful pointers on bookkeeping and GST remitting. 

Steps to Incorporation, Part 3

Here is the last part of our blog series.  Enjoy!

At this point it is time to physically complete the registration of a new corporation.  If you haven’t yet completed a NUANS, you would do so at this point.  If your corporation is a numbered company, then no NUANS is needed.  Registration should not typically be done directly through a registry as you don’t get a completed minute book from most registries.  Even if you are able to receive a completed minute book, you should still be working with a professional to ensure the minute book has everything you need in accordance with the structure you’ve decided on.  Having a minute book is very important as we’ll discuss in a later blog of this series. 

You also need to determine if your corporation needs a Corporate Seal, which is really an impression stamp that is used as a type of signature for your corporation.  This may be used for signing documents for loans, lines of credits, mortgages and other debt instruments.  It can also be used for signing documents when you are purchasing assets such as Real Estate.

Now that you have your Corporation registered, there are only a few more steps to get it fully operational.  These are quite simple steps.  You will need to ensure you have the correct components of your Business Number registered with CRA (Canada Revenue Agency).  The main 4 components that you may need are Corporate Tax (required with a Corporation), GST (Goods & Service Tax), Payroll, and Import/Export.  These are explained in our business start up guide and in Kustom Design’s blogs on our website.

You will also need to set up bank accounts for the corporation.  It is always good to set up a chequing and a savings account as you should put money aside for taxes when you earn income (Corporate tax and GST).  There are of course other considerations in starting your business such as licensing and insurance.  To see all the things you should look at doing when you start your business Kustom Design has a Business Start up Checklist, so please do inquire!

Steps to Incorporation, Part 2

Here’s part 2 of our blog series on Steps to Incorporation:

Once you’ve determined whether the corporation will be federal or provincial, it is time to pick your name.  You must confirm that the name is available and is not already being used.  To do this you can do a quick search (in most provinces) and you will then know if the name is available or not.  Sometimes you may find that there is a name being used that is very similar to the name you chose.  if that is the case you may not want to move forward with that name as you could run into issues down the road, such as confusion to the public or even lawsuits from the corporation that has the similar name.  You can simply look at variations of your name to get around this issue, or you may have to look at a completely different name.  Also keep in mind when deciding on a name that you most likely will need a website so it is good to check what domains are available that you can use with your business name.  Once you’ve determined your name is available for the corporation, you can hold on to it for a period of time if you are not ready to incorporate.  This is important, otherwise someone else could take the name before you incorporate it.  To do this you simply get a NUANS through the registry, or Kustom Design can do this for you.

Next you need to confirm your structuring.  Although you should have been planning for this structure right from the beginning, now is the time to finalize it.  If you have not read my blog on Structuring your Corporation, then go now and read through that blog in detail.  Keep in mind that it is important to determine who the shareholders, directors and officers will be.  If you have a family trust and/or a holding company then you should not own an operating company personally, the trust and/or holding corporation should own the operating company.  If you are partnering with other people than you should definitely look at getting a Unanimous Shareholder’s Agreement (U.S.A.) as discussed in a prior blog of this series.

Last part of this blog series will be posted soon! Please check back!