# How to handle cost of Corporation Setup On Tax return



## [email protected] (Apr 24, 2011)

I formed a Canadian Federal corporation in May 2011, and used my personal funds to pay for the formation fees (obviously, since the corp didn't exist yet).

So my question is: do I claim this expense on my personal (sole proprietor) income tax return, or can I pull the money out of my corporate bank account and claim the expense on my corporate tax return?

Thanks in advance for any insight on this.

Kevin


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## marina628 (Dec 14, 2010)

Just pay yourself the fee from corporate account and show it on your books with receipt.If you are doing your own accounting quickbooks is very good program.It is always good to set up a shareholder account in your accounting software for times when you may have to pay from personal funds.


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## Homerhomer (Oct 18, 2010)

In your corporation you would set up due to/from shareholder account for the amount you spend personally for the corporation's expenses. If you spent $500 out of your own pocket now the corporation owes you $500, it's a loan that can be repaid without any tax consequences to the shareholder.


Marina, paying a fee may not make sense in his case, the fee would have to be claimed as income on the personal tax return.

Quickbooks is a good program, I agree.


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## marina628 (Dec 14, 2010)

Paying the incorporation fee from personal account then write check from company account will not result in any taxable income to him...


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## Homerhomer (Oct 18, 2010)

I didn't say that paying for incorporation fee from the personal account will result in taxable transaction, I said that paying a fee from the corporation to an individual will be taxable transaction, which is what you suggested he does.




marina628 said:


> *Just pay yourself the fee from corporate account* and show it on your books with receipt..


I am not sure to what you are referring to as paying a fee, but it usually means a fee for services, management fee or what not, different from reimbursements for expenses paid personally on behalf of the corporation, just want to makes sure OP is clear on that.


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## Helianthus (Oct 19, 2010)

Expense (Or capitalize if you want) in the books of the corporation and set up the balance as due to shareholder, or pay it out. 

When you prepare your corporation's taxes the amount will go on S(10) as Cumulative Eligible Capital (CEC).


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## marina628 (Dec 14, 2010)

He wants to get THE FEE that he already paid back from his company account ,I am not talking about any other fees LOL


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## [email protected] (Apr 24, 2011)

Thanks all for your suggestions, that's what I figured I had to do, and you've confirmed it.

I also bought an ecommerce website with my personal account, as my business bank accounts and credit cards weren't yet setup, so I assume I can handle the same way for that.

I do have Quickbooks and am slowly figuring it out and getting it setup.

Kevin


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## Young&Ambitious (Aug 11, 2010)

Haha oh the confusion  

Yes, the company will reimburse you the individual for your personal outlay. 

This will hit the shareholder's due to/from account as previously said.


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## marina628 (Dec 14, 2010)

Kevin
When I was starting up a few years ago ,I paid an accountant to set up my company in quickbooks and she made me some notes which I still use today
It cost me only $200 and definitely well worth it.


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## Russ (Mar 15, 2010)

I agree with Marina. 

Most non-accountants set up Quickbooks or Simply incorrectly and then proceed to make a mess of their daily entries. They end up paying much more to have the mess cleaned up than it would have cost to get some advice at the beginning.

If bookkeeping isn't your thing, consider paying someone to do it and use the time thus freed up to prospect for more clients or whatever it is you do best. You will not only enjoy it more, you will likely make more than you will have to pay.

That's why I pay a mechanic to fix my car. I'm horribly slow at this kind of work and I can make more in that amount of time than my much more efficient mechanic will charge me. YMMV.


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## Homerhomer (Oct 18, 2010)

Russ said:


> Most non-accountants set up Quickbooks or Simply incorrectly and then proceed to make a mess of their daily entries. They end up paying much more to have the mess cleaned up than it would have cost to get some advice at the beginning.
> 
> If bookkeeping isn't your thing, consider paying someone to do it and use the time thus freed up to prospect for more clients or whatever it is you do best. You will not only enjoy it more, you will likely make more than you will have to pay.
> 
> .


Agree, to clean up the mess costs more than paying someone to do it right in the first place ;-), if you can handle it yourself then by all means do that, but learn how to do it properly, it's not a rocket science but you will be surprised how badly some poeple manage to mess it up. ;-)


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## Young&Ambitious (Aug 11, 2010)

So true. Accountants have years of knowledge and experience that someone cannot pick up overnight, in a week, month etcetc.


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## eulogy (Oct 29, 2011)

Instead of opening a new thread, I thought I could ask in here since the topic sort of came up.

I formed a corporation this year. In the past I was doing sole proprietor. I got an accountant to do my taxes because it's a lot more complicated than I'm used too.

Anyway, I personally paid just under $400 to register the corporation. I also paid a few hundred in expenses personally, as I wasn't fully setup to handle some expenses.

My accountant just finished up some pre-tax stuff. Basically it was assets, liabilities, earned income (so far), expenses, what's in my bank accounts, etc.

When I received this stuff (along with my bill for it), I asked if I was able to write myself a check for the expenses I personally paid out. He told me "technically" that is how it works, but I wouldn't be able to due to his "work around" for me paying expenses personally.

This has left me in an odd position. Right now, the money won't be taxed within the corporation, but if I try to compensate myself for the expenses I'll be taxed. Versus (how it's supposed to work), the expense is reimbursed by the corp.

Am I getting led on?


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## marina628 (Dec 14, 2010)

IMO if you have to come here to ask strangers you do not have the right accountant


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## Russ (Mar 15, 2010)

Just to clarify...

Since the corp. hasn't reimbursed you, the expense is yours personally, is not tax deductible. You paid the expense with after-tax money. 

If the corporation were to reimburse you, the expense would belong to the corporation and would reduce the corporation's tax bill (or increase its loss carryforward). The cash would not be taxable in your hands personally because it was originally paid with after-tax money.

Do I have this right or am I missing something? And what the heck is the "work around"?


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## eulogy (Oct 29, 2011)

Yeah that's what I was getting at. Except if I pulled money out to cover these personal expenses, I would be pulling income in this scenario, which would be taxable personally.

I don't get it. I assume it would be relatively simple at least for the corporation registration fee because paying to register is always not done by the corp you're creating.

He didn't explain what the "work around" is.

This is definitely odd though right?


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## marina628 (Dec 14, 2010)

how much did you pay this guy?if you live in Toronto area i know a great accountant $40 + HST per hour well worth it.


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## Young&Ambitious (Aug 11, 2010)

This is simply a reimbursement from the corporation to you as an individual - there are no persay tax implications. The only event happening is a decrease in the shareholder loan and an increase in business expenses. This should be a very simple and straight forward transaction..

Based on the information provided I can't really tell what your accountant did. Did they included the money as part of your share capital??


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## eulogy (Oct 29, 2011)

Judging from what I have right now is that the corporation fee is listed under "fixed assets".


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## Young&Ambitious (Aug 11, 2010)

Eulogy, technically incorporation costs is a capital asset, however in practice for small businesses this amount is typically quite small and therefore expensed on the income statement. Your accountant likely had good reasons for setting it up in this manner. 

This label of capital assets is of no issue as the debit would have been to capital assets, but the credit entry should have gone to a 'loan to shareholder' or 'accounts payable' account etcetc.


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## eulogy (Oct 29, 2011)

Well that's good to hear. I'm going to get in contact with my accountant and see if he can get it straightened out where I can my money back for such things.


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## eulogy (Oct 29, 2011)

oh, talked to my accountant and apparently it was a misunderstanding. He was under the impression that I just wanted to keep the money in the corporation.


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## [email protected] (Apr 24, 2011)

marina628 said:


> Kevin
> When I was starting up a few years ago ,I paid an accountant to set up my company in quickbooks and she made me some notes which I still use today
> It cost me only $200 and definitely well worth it.


Marina,

Could you private message me (or post it here) the contact for the accountant you used to set up with Quickbooks? I can't seem to PM here, likely because of my low post number.

Thanks,
Kevin


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## marina628 (Dec 14, 2010)

Kevin I sent you a PM , her rates are $40 + HST but when she was at my house she made me excellent notes , that was 5 years ago and I still have them You won't regret having it set up by a professional !


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