Starting a New Business

A new business can be structured as a proprietorship, a partnership, or as a corporation.

Every form of business organization results in certain Canadian federal and provincial tax consequences, which should be carefully weighed by an entrepreneur as part of their short- and long-term business and tax plan.

The following fundamental tax issues should be considered in the course of selecting an appropriate business form:

  • What is the overall tax burden on the business?
  • What is the effect of federal and provincial taxation, GST/HST, excise and commodity taxes and levies on the business?
  • What is the personal liability for federal and provincial taxes, including income taxes, GST/HST, Canada Pension Plan (CPP), and Employment Insurance (EI)?
  • How complicated and expensive is the annual business and tax compliance?
  • How to avoid double-taxation of business profits?
  • How to capitalize the business – equity or debt?
  • How to take earnings from the business?
  • How to protect yourself from the personal liability of business losses, while using them effectively to reduce personal and business taxes?
  • What are the business and tax exit strategies?

With several exceptions, the law does not prescribe the form a particular business should be operated. Business owners are free to choose the one that is most suitable for their business needs and, at the same time, minimizes the income tax payable at the business and personal levels. For example, software production or export-import operations can be carried on by an entrepreneur either personally, through a limited partnership or through a wholly-owned corporation.

Importantly, as the business grows, it can be reorganized from one legal form to another. For example the transfer of a sole proprietor business into a corporation can take place on a tax-free basis.

A tax lawyer can be of assistance in helping a business owner choose the most tax-efficient business form suitable for their present and future business needs.

Toronto Tax lawyers