What are the CRA Accounts required and Optional when opening up a New Corporaton?

There are 3 Different Tax Accounts:

RC - main tax account

• Automatically assigned when incoporating a new corporation

• you do not need to register for an RC account, its automatically opened

• Correlates to a corporations Income tax

• Equivilent to the income tax that you pay on annual earnings

• BN or Business Number, is a federal tax ID assigned to a corporation which is 9 digits long.

• it will have a trailer such as RC0001- you can have seperate accounts opened under an business number in which they will be in sequence - RC0001 RC0002 and so on.

The Optional Accounts - Pros & Cons

RT- GST or HST account - Excise Tax Account

• This is optional and is not automatically opened for you

Now the big question is should you register for a GST/HST account before hitting $30,000 in world wide sales?

• Going against doing so, is the fact you will burden your customers with an extra 5% (GST), (upto 13% HST) extra payment.

• However as a registrant the ITC (Input Tax Credit system) is available to you that you can reclaim on your valid expenditures (the tax that you paid on expenses)-

• A big determinant would be are you taking on commercial rent? If so your $6000 monthly rent in provinces that have HST is going to incur upto $780 monthly expinditure and other amounts as well. Do we want to have this amount back and deduct from HST paid from clients?

• If you have a service business probably not a good idea to incur the extra cost for your customers as you probably are not paying much in ITC's.

RP - Payroll Account - do not open unless you have employees or you are going to be an employee

• Only two ways to extract funds from a corporation for a shareholder (beyond return of captal) is through salary or dividends

• If you have a new company and will not be hiring employees for say 6 months or more then you will most likely want to hold off on the optional account Payroll until you are going to need it, as it is a burden for new clients.

• Do you want to file a nil remittance each month on the 15th for payroll? (Depending on your directors payroll consideration)

• Once the optional accounts are opened, you have an obligation to file, so more paperwork.

• Payroll monthly , and GST either monthly, quarterly, or annually. Even if it is a nil (zero) return.

Did You Know:

Corporations only have 3 rates of tax as compared to a individual persons marginal rate.

1. 12.2% if subject to the SBD (depending on province) (<$500,000 of active business income)

2. 26.5% for General Rate Active Income above the amount for the SBD (>$500,000 active business income)

3. Up to - 50.2% for investement (passive) income -"rent, royalties, interest, dividends (non connected companies)