# New company - Tax questions



## PepeLapiu (Nov 22, 2012)

Hi,I just registered a new numered limited company today.

I will be the one and only employee ..... for now anyway.

Do I just take whatever profit from the company and send myself a T4 for it?
If I pocket all the company profits as wages to myself the company itself has no income. Do I still have to file taxes for the company?

Also, let's say the company makes 10$ profit this year. And let's say I believe that the price of lollipops will double soon so I decide to invest by buying 10$ of lollipops and have the company sit on the lollipops for a few years. Next year the lollipops go up to 30$ in price so I decide to sell.

Do I report a 10$ company income this year and an other 20$ (profit from price gain) of income next year?
Or can I just claim the company made no money this year and 30$ the next year?

Sorry if my investment example is simplistic. I guess the purchase of the lollipops would become an asset, or investment. 
Are asset purchases taxable? Or is only the profit from the sale of the assets that is taxable?

Cheers and thanx,
PepeLapiu


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## sprocket1200 (Aug 21, 2009)

go talk to a very good accountant and lawyer. you will need their help.


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## PepeLapiu (Nov 22, 2012)

I will try to make this more clear:

I would like to buy some investments through my company. I hope the cost of these investments would lower my tax bracket for this year.
When I retire and I have a lower income bracket, I can cash in the investments. Hopefully for a profit, and also used as a tax deferral.


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## Plugging Along (Jan 3, 2011)

^ +1, and talk to the lawyer and accountant before you do anything... there's so many things you need answered


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## Homerhomer (Oct 18, 2010)

PepeLapiu said:


> I will try to make this more clear:
> 
> I would like to buy some investments through my company. I hope the cost of these investments would lower my tax bracket for this year.
> .


No, it would not, assets do not reduce your tax in the year.


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## Homerhomer (Oct 18, 2010)

PepeLapiu said:


> Hi,I just registered a new numered limited company today.


Well you rushed, you don't have enough knowledge or proper guidance.





PepeLapiu said:


> Do I just take whatever profit from the company and send myself a T4 for it?


It depends on many factors.



PepeLapiu said:


> If I pocket all the company profits as wages to myself the company itself has no income. Do I still have to file taxes for the company?


Yes, you still have to file corporate taxes each year, you need to file hst and payroll if applicable as well.




PepeLapiu said:


> Also, let's say the company makes 10$ profit this year. And let's say I believe that the price of lollipops will double soon so I decide to invest by buying 10$ of lollipops and have the company sit on the lollipops for a few years. Next year the lollipops go up to 30$ in price so I decide to sell.
> 
> Do I report a 10$ company income this year and an other 20$ (profit from price gain) of income next year?
> Or can I just claim the company made no money this year and 30$ the next year?


You report the profit when the profit is made, not when you feel like it ;-)




PepeLapiu said:


> Sorry if my investment example is simplistic. I guess the purchase of the lollipops would become an asset, or investment.
> Are asset purchases taxable? Or is only the profit from the sale of the assets that is taxable?


For small businesses there is no tax on assets.


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## kcowan (Jul 1, 2010)

You must declare all the corporate income in a separate filing. You have a choice to pay out any profits. Normally people pay them out as dividends so they are taxed differently. Also dividends can be paid out to all shareholders, thereby doing income splitting. You can also retain earnings because they are taxed more favourable that income in your hands.

The company can purchase selected assets required for doing business. Because the options are infinite, getting the advice of a good tax accountant can pay dividends. Some assets are better than others as far as the CRA is concerned.


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## Cal (Jun 17, 2009)

I would talk to the accountant first, also discussing the necessity of a consultation with a lawyer.


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## Robillard (Apr 11, 2009)

I think that, in general, it is not a good idea to hold passive investments through a closely-held corporation. I can't state this definitively, since it is outside my specialisation in international tax, but it's my understanding that, if the corporation does not have an active business, you don't get to defer taxation on the passive investment income owned by the corporation (this might be restricted to passive foreign income though). In principle, the Canadian taxation system is designed so that there is no advantage to holding passive investments through corporate accounts compared to individually-owned accounts. Otherwise everyone would be setting up investment holding companies, and deferring taxation on investment income.

You should consult an account and/or lawyer about this.


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## oedema (Jan 1, 2012)

Robillard said:


> I think that, in general, it is not a good idea to hold passive investments through a closely-held corporation. I can't state this definitively, since it is outside my specialisation in international tax, but it's my understanding that, if the corporation does not have an active business, you don't get to defer taxation on the passive investment income owned by the corporation (this might be restricted to passive foreign income though). In principle, the Canadian taxation system is designed so that there is no advantage to holding passive investments through corporate accounts compared to individually-owned accounts. Otherwise everyone would be setting up investment holding companies, and deferring taxation on investment income.
> 
> You should consult an account and/or lawyer about this.


This is correct. However, if you have active small business income (taxed at the lower rate vs. passive investment income), there is a benefit to holding investments in the corporation - the benefit is in deferring taxes. 

Here's how I do it: At the end of the year I declare dividends equal to the amount of investment income in the corporation, thereby avoiding paying the higher corporate tax on passive income. I effectively pay the investment tax personally and have the benefit of the eligible dividend tax credit. 

I also retain any active/small business income that I don't need to live on within the corporation where it is taxed at the lower rate of ~15%. By retaining this income instead of distributing it to myself, I keep the difference between the corporate and personal income tax rates(this is the amount that is deferred). That extra money retained and deferred within the corporation can then be used to fund further investments.


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