Bob Gauvreau walks through what changes when you incorporate a sole proprietorship or partnership. A corporation is a separate legal entity that needs detailed corporate tax filings with assets and liabilities, CPA-prepared financial statements, and T5 statements if you pay yourself dividends.
Chapters
Okay, so let's talk about the additional requirements that would be involved if you decide to incorporate your business. So in this case, you're either a sole proprietorship or you're a partnership. And what you're going to do is you're going to start this corporation and we're going to transfer the operations from your sole proprietorship or partnership into this corporation. Now, a corporation is a separate legal entity. As soon as you incorporate, it's the birth certificate of a new entity that has the same obligations as us. As individuals, we have to claim our income and we have to report it. So as a proprietor, you include your business income or statement of operations from business on your personal tax return. With a corporation, you also have to file a separate income tax filing related to that entity because it has income and expenses. So as a corporation, there's a separate filing. And not only is there a separate filing, it's a much more sophisticated filing. As an individual, we only have to report our revenue and our expenses. As a corporation we have to report our revenue expenses, but we also have to list our assets and liabilities. And with a corporation in Canada, it's highly advisable that when you file a corporate tax return, you have financial statements that are completed. This includes a balance sheet and an income statement that reports everything accurately. And I would highly recommend when you go to the corporation status that you have a CPA prepare notice to reader or compilation engagement financial statements. At a minimum, that will allow everything to be reconciled and make sure that you're reporting things accurately. So that would be a primary difference between a sole proprietorship or a partnership and a corporation. Now when you think of employees, you can have employees as a proprietorship, pay them a salary, source, deductions. That is the same circumstance. As a corporation, just knowing that the corporation's name would be on it versus you as an individual. And what we have to think of is, is the different filing requirements maybe related to a dividend distribution for you, which is a T5 statement of dividend or statement of investment income that we provide to shareholders. That's a separate filing as well. But for the most part, everything else would be equivalent. Whether you're sole proprietor, partnership or a corporation, it's just the corporate tax filing and that distribution of investment income to a shareholder that would tie things in slightly different between a non incorporated business and a corporated business.
