What is a corporation

As we stated in the introductory blog, “A corporation is an entity created by a person or a group of people for the purpose of creating a separate legal entity for themselves.”  A corporation has similar rights to that of an individual as it may earn income, borrow money, lend money, run business and more.  It is like having an artificial entity that you can control. 

Just like we get a Birth Certificate when we are born, a Corporation gets a Certificate of Incorporation when it is created or “born”.  The Certificate of Incorporation, along with the Articles of Incorporation gives the Corporation its existence.   Remember that the laws that the Corporation abides by is determined by the jurisdiction of where the Incorporation was formed.

Corporations typically have a different taxation system than individuals do.  Later in this series we will discuss some of the taxation rules of Corporations and how to maximize the tax savings of a corporation. 

As also mentioned in the past blog, Corporations offer a limited liability for the person or group of people that set up the corporation.  For instance the owner(s) of an incorporation, called the shareholder(s), take no real liability except for any money they have put into the corporation.  The Director of a corporation is the one that takes the liability.  This is the person that is the “operating mind” of the corporation.  Because there is a limited liability, the director is not responsible for all liabilities, only things like Government and CRA debts, environmental damage or any debts of the corporation that were personally guaranteed by the director.

Watch out for my next blog where we will get deeper into understanding the basics of the corporation and get to know the 3 main people or groups of people that make up a corporation. 

Introduction to the Blog Series: "Understanding the Corporation"

A corporation is an entity created by a person or a group of people for the purpose of creating a separate legal entity for themselves.  In other words, when a corporation is created it has a separate existence from any individuals, although it is set up and ran by individuals or groups of people.  This separate legal existence allows for liability protection, tax savings and estate planning to the extent that the jurisdiction where the corporation is set up allows within its rules and laws.  Although Corporations exist in countries all over the world, they are all similar in nature.  Also, a lot of provinces states and countries offer different types of corporations for different purposes.  For example, in The United States Corporations come in many forms such as Limited Liability Corporations (LLCs), S Corporations, C Corporations and more.  In Canada the main Corporations we use are Canadian Controlled Private Corporations (CCPCs), Professional Corporations, Public Corporations, Non Profit and Charitable Corporations.  In the scope of this series we will mostly be discussing the CCPCs as these are the Private Corporations that the everyday Canadian uses.  The other types of Corporations share similar traits and have similar rules so these blogs do have application to the different types of Corporations, and as usual if you have questions you can contact me.

In this series we will go cover what a corporation is, how to understand the basics of a Corporation, why and when to incorporate, ways to structure corporations, steps on incorporating, working with a corporation, maximizing the use of a corporation and how to sell, dissolve(close) or pass on an incorporation.  This is a much needed series that I know will educate and assist many.

Understanding the Taxpayer Bill of Rights Part 3: Commitment to Small Business

The next section of the Taxpayer Bill of Rights deals with Small Business.  We will now review these 5 items on the Taxpayer Bill of Rights.

1.The Canada Revenue Agency (CRA) is committed to administering the tax system in a way that minimizes the costs of compliance for small businesses:

As much as they say they try to minimize the costs of compliance for a small business, it is not an easy task.  CRA must balance this with their responsibility to administer and collect.  It is not advisable for a small business owner not to have an accountant who can advise them in the area of tax and reporting responsibilities.  Although CRA says they want to minimize it, it definitely seems to be heading the other direction!

2. The CRA is committed to working with all governments to streamline  service, minimize cost, and reduce the compliance burden:

The best example we can see of this is when the CRA collects taxes and gives the provinces their portion.  This is not the case in Alberta.  Although we don’t see great evidence of this, we can assume they do work with other governments to streamline things.  They do want to collect their taxes quicker, which hopefully makes it simpler for the small business!

3. The CRA is committed to providing service offerings that meet the needs of small businesses:

The CRA offers various online services for electronic filing and accessing information through an online CRA account.  As with any electronic service it can bring technical difficulties, however it can still be effective once in place and running smooth, particularly the access to your information online.

4. The CRA is committed to conducting outreach activities that help small businesses comply with the legislation we administer:

This mostly means they put on courses and put out publications for people to understand their opinions and methods.  Sometimes this can assist, but never just take it as fact!  It is always better to have your own tax advisors, accountants and lawyers that don’t work for the CRA!

5. The CRA is committed to explaining how we conduct our business with small businesses:

In my experience they sometimes do explain very well and other times they don’t.  I’ve worked with some auditors who are quite thorough and explanative, while I’ve worked with others who do their thing, won’t really answer your questions, and they just send a Reassessment.  It really depends on who you are dealing with as to what explanation you will get! 

So as you can see, the Taxpayer Bill of Rights is an important piece of legislation.  It is imperative that you know your rights, otherwise how will you know if they are trampling your rights and what to do about it.  If you believe that CRA is not staying in honor of any of these Rights, then lodge a complaint and go to the Ombudsman.  If we don’t do something to hold them accountable, who will? 

CRA also publishes a guide to explain this Taxpayer Bill of Rights from CRA’s side…( http://www.cra-arc.gc.ca/E/pub/tg/rc17/rc17-09e.pdf).   If you have any questions on the Taxpayer Bill of Rights or my blogs, please do contact me!

Understanding the Taxpayer Bill of Rights Part 2

Here’s the continuation of my discussion on the Taxpayer Bill of Rights.  We ended the previous blog with the 5^th taxpayers’ right so let’s move on to #6.

6. You have the right to complete, accurate, clear, and timely information:

This is another tough one as there is not a clear definition of what timely information is!  This is typically up to the Ombudsman or a judge to decide.  Getting it in writing ensures the information should be complete and accurate.  The word clear is also an issue here as a lot of things put out by the CRA are not clear to taxpayers! 

7. You have the right, as an individual, not to pay income tax amounts in dispute before you have had an impartial review:

This is a very important one!  If you have an amount in dispute through the appeal or Notice Of Objection then you do not have to pay it, until or unless it is resolved as owing.  However, interest may continue to accrue if the amount in fact has to be paid later. Also, if you are waiting for a refund for something else or another year they cannot hold it due to other amounts in appeal!

8. You have the right to have the law applied consistently:

In all my years doing accounting, I have rarely seen this to be true.  If you find this to be an issue, the Ombudsman must be notified in writing with the facts and details.

9. You have the right to lodge a service complaint and to be provided with an explanation of our findings:

Pretty self explanatory.  To lodge a complaint follow this link -- http://www.cra-arc.gc.ca/gncy/crsc/menu-eng.html

10. You have the right to have the costs of compliance taken into account when administering tax legislation:

So yes, if you hire accountants, lawyers or advisors you can deduct the cost.  Our motto at Kustom Design is that when you hire us, we’ll save you more in tax than you pay us for our accounting fees!

11. You have the right to expect us to be accountable:

Notice the wording on this – we have the right to expect them to be accountable…but do we have the right for them to be accountable?  Seems to be trick wording here!  If we look at the actual definition of accountability we can see clearly that they are not always accountable.  That being said, they usually are as clear as they can be why they have made a decision on tax matter, right or wrong.  They also do publish some annual reports to both public and parliament.

12. You have the right to relief from penalties and interest under tax legislation because of extraordinary circumstances:

This is a good one as there is sometimes the possibility to have things like penalty & interest waived, to allow you to file late returns without being penalized, and even to get refunds past 3 years back in some circumstances.  The details of applying for this relief can be found here (http://www.cra-arc.gc.ca/gncy/prgrms_srvcs/txpyrrlf/menu-eng.html).   If you are denied the first time, you can even file a further request.

13. You have the right to expect us to publish our service standards and report annually:

This one is pretty straight forward.  The annual service standard report can be found at www.cra.gc.ca/agency or (http://www.cra-arc.gc.ca/gncy/nnnl/menu-eng.html)

14. You have the right to expect us to warn you about questionable tax schemes in a timely manner:

This one is more for their benefit than yours.  They will warn you about things that are good and bad and you won’t know the difference.  They actually use this as a tactic to scare people from tax planning as tax planning and using tax programs can significantly reduce their revenues.  Keep in mind they are a collection agency and are paid to collect as much money as they can, which includes discouraging people from planning to save tax!

15. You have the right to be represented by a person of your choice.

Many times it is advisable to have a lawyer or accountant represent you when dealing with CRA, particularly when it comes to audits.  To give rights to a representative to handle your CRA matters you will need to fill out and submit a RC59 to CRA (http://www.cra-arc.gc.ca/E/pbg/tf/rc59/README.html).