We are seeing it a lot. You get hired as a “contractor” and part of the deal is that you need to incorporate. It seems to be a tactic used by some employers to get around employment standards laws and other regulations of hiring employees, including tax. It’s unfortunate because it places the burden of compliance and the costs associated with it on you, the contractor/employee.
Complaints aside, there are now things that you need to do in order to maintain compliance for your corporation and manage the flow of money to you personally. This article will cover everything you need to do.
Real Talk - You’re Probably a Personal Services Business
Unfortunately, all the benefits you have heard about corporations (low tax rates, tax planning, etc.) will likely not apply to you. This is because you are likely considered a Personal Services Business. This is a special type of corporation that essentially covers incorporated employees and limits the ability to pay dividends and deduct certain expenses.
With that said, let’s walk through what you need to do to get the corporation started and what you’ll need to do going forward to keep it compliant (spoiler alert: you can do this yourself, but we can help too - just reach out here).
How to Set Up Your Corporation
It’s likely that you will be the only owner of this corporation, so a simple share structure should suffice. Please refer to our article on share structure (video) to ensure a simple structure will work for you and consult with a lawyer if anything is unclear.
The process of incorporation is fairly straightforward with services like Ownr (using this link give you a 20% discount). They offer affordable incorporation services online. Alternatively, you can have a lawyer help you.
Named or Numbered?
For a simple corporation like this, a numbered company will work just fine, but you can name it too for a little flair!
Choose a Year-end
As a corporation, you are able to choose any year-end date that you like. However, for most corporations like this, we would advise you to make it December 31 to keep things simple.
Open a Business Bank Account
You will need a bank account in the corporation’s name. The corporation is a separate legal entity from you, so when you invoice and get paid to the corporation your account name must match that legal entity name.
Register for GST/HST and a Payroll Account
One you have your incorporation, you should be given a CRA business number. This number will be suffixed by an RC0001. This is the program account and you will need to register for 2 other program accounts: GST/HST (RT0001) and Payroll (RP0001). Here’s how to register for program accounts.
Maintaining the Corporation
Corporate Tax Returns (Annually)
Each year, you will need to file a corporate tax return (T2) with CRA. These are typically completed by an accountant, but some business owners choose to file these on their own.
Corporate Registration Filings (Annually)
These are separate from your tax returns, but are often called your Annual Corporate Return, which is confusing. If you incorporate with Ownr, they have service tiers to take care of these for you. Likewise, a lawyer will generally handle these for you if you use them for your incorporation.
Bookkeeping & Invoicing
You will need to keep track of your transactions for the corporation. Please refer to our bookkeeping guide and walkthrough of our free bookkeeping template.
For invoicing, you can use a Google or Microsoft Office template. Be sure to include GST/HST on your invoices to your employer if they are located in Canada. The percentage that you charge will be the rate where your employer is located (13% if they are in Ontario for example, here are the others).
Lastly, you must keep a record of your expenses. Digital receipts are just fine, so you can take photos of them and save them to a Google Drive folder or something similar to refer to later if audited.
You could also use software like Wave, Xero or Quickbooks to manage the bookkeeping and invoicing, but these might be overkill for you.
GST/HST Returns (Annually or Quarterly)
Now that you have registered and are charging for GST/HST, you will need to file a return. Here’s our article on how it works and how to file it on your own.
Filing your return is one thing, but you may need to make installment payments as well. If you owe more than $3,000 in a year, you will be required to pay quarterly installments the following year. You should receive a letter from CRA telling you what your required installments are - make sure to put these in your calendar to avoid interest charges.
Run Your Payroll (Bi-weekly, Semi-monthly, Monthly) and File T4 (Annually)
Here’s where things get a bit more complicated. Payroll can be a bit tough to wrap your head around at first, but luckily, we have a guide for that too. We’ve also put a video series together as well to help you run and track your payroll for free.
Here are the basics:
Choose your payroll frequency: there’s no right answer here - how often you would like to be paid (monthly is common for these situations)
Calculate Your Net Pay and Remittance Amount: Use CRA’s online calculator or software like Wagepoint for this.
Record the details in a spreadsheet: Our YouTube series has a link to a free template.
Transfer your net pay and file and pay your remittance: your net pay can go to your personal bank account and the remittance can be filed and paid through your online banking.
File your T4 each year: use your spreadsheet to tally up all the amounts to file with CRA - you can file this through CRA online, or your payroll software can do this for you.
Honestly, while saving a few bucks by doing everything manually might seem appealing, you will save yourself many headaches by paying for a software like Wagepoint. Wagepoint handles your monthly filings and remittances and prepares your T4s for you (you just have to review it and mark it ready for submission each year).
The Easiest Way
If this all sounds a bit much and you’d just like someone to handle it for you, you have come to the right place. Our annual retainer package will include setting up your payroll on Wagepoint and training you and then filing your GST/HST, T4s and corporate tax returns annually. You’ll have a dedicated Client Manager to reach out to with any questions as well. Reach out now to get started.