Business Startup Planning

Get help from Toronto income tax lawyers on business tax planning

The tax issues involved in starting up a business are very different from the tax planning issues faced by an individual. An entrepreneur with or without any experience in business such as a former executive of a large corporation or an employee will only have a general idea of the legal issues related to starting up a business. In such cases retaining one of our best Canadian income tax lawyers will be most helpful. Our experienced Canadian income tax lawyers will recommend appropriate tax planning bearing in mind the different forms of enterprises and provide legal advice as to the tax implications of each business form.

In a partnership business the partners report their income in their personal capacities but the determination of income at the partnership level is computed as though the partnership were a separate person. The income of the partnership is computed for  its fiscal period which is the calendar year. The partnership is required to compute its income from various sources pursuant to which each partner then recognizes his share of the income and loss components in his own personal T1 tax return. The various sources of income for all entities including a partnership computes are capital gains, business income including farming or fishing income and property income. Losses are deducted by the partnership.  It is important to ensure that the computation of income of a partnership for tax purposes must be in accordance with the general rules for computing income under the Income Tax Act as well as with all specific rules applicable to partnerships.

Our income tax planning lawyer Toronto will make sure that the business tax planning techniques are in compliance with the rules of the Tax Act. A key tax planning point in partnerships is that when a partnership reports a loss for the year, that loss is allocated to the partners and the partnership itself does not carry the loss over to another year in order to reduce the income reported to the partners for that year.

The more common form of business operations is  through a corporation. A corporation is a legal entity separate and distinct from its shareholders. Thus a corporation is a legal “person”, and therefore a “taxpayer” for Canadian income tax purposes. This gives rise to different problems in taxation. There are two stages of taxation where a corporation is involved. One is at the corporate level and the other is at the shareholder level when corporate earnings are distributed to the share holders.

The taxation of corporate income depends upon the type of corporation, the source of its income, the timing of its distribution to shareholders and relationship between the corporation and its shareholders. One of the complicating features of the corporate tax system is the potential for double taxation of income in the corporation and again in the hands of its shareholders. While the Canadian tax system is integrated so that in theory the same rate of tax is paid if income is earned in a corporation and paid out to a shareholder, or earned directly by the individual shareholder, the system is not perfect. The tax act does provide some relief from double taxation in certain situations but whether such relief is complete or partial depends upon the status of the payer corporation and the source and amount of its income. In some situations there exists a potential for deferral of taxation as a tax planning technique. Our Toronto income tax lawyers will provide you with the best tax planning solution that fits your personal and corporate situation.