At you looking at incorporating a Quebec business? Let us look at the positive and negative aspects of incorporation.

The creation of a business corporation is a simple tool, amongst others, in your overall business strategy.

It should be used if it meets your short and medium-term objectives, as a part of your business and personal tax planning.

There are two kinds of advantages to the incorporation of a business. Fiscal or tax advantages, and advantages related to corporate asset protection. Since tax rules evolve constantly, one must consider fiscal aspects carefully.

Quebec Business Guidance

A professional will guide you through complex tax rules. Please contact your lawyer, accountant, or tax specialist to get advice best suited to your needs.

Whether you choose to create a Federal (Canada) or Provincial (Quebec) small business corporation if your business is based in the Province of Quebec, your corporation benefits from the same many advantages and few disadvantages.

Fiscal Advantages of a Business Corporation

Combined (Federal and Provincial) corporate tax rates are lower than individual tax rates. Capital Gain Tax Exemption for the first $892 218 in value.

This potentially allows you to save $223, 054.50 when you sell your shares, as current tax rates are set at 25% for capital gains.

Cheaper financing

A corporation can deduct interest fees from its income. This represents significant tax savings when compared to the cost of personal financing.

If you use personal funds for your business, you use after-tax dollars which were taxed at the full applicable personal tax rates. When you use your corporation to borrow funds, much lower corporate tax rates apply.

You may choose to lend funds to your corporation and have it pay you back from its profits. This allows you to fund a part of your business without freezing too much capital for a long time.

The corporation can offer its assets to guarantee a loan. Real estate, equipment, receivables, and goodwill, all can be used to secure financing. Different rules apply.

Movable or immovable hypothecs might be required and registered. Contracts may apply.

Tax deferral can be used

This allows you to use funds for a longer time than you would think.

Since you can choose the date of your corporation’s financial year-end, you may be able to hold on to some of those hard-earned dollars for a few months more than if you had to file personal income tax statements as of December 31st year-end.

There are many deductible expenses for your corporation

If they are considered reasonable and required for your corporation to earn business income by fiscal authorities, they can be deducted.

Keep all receipts! Car expenses are often a big expense. A fraction of all costs related to the use of your car for business purposes is deductible. With car prices hitting record levels, you should consider having your corporation absorb a fraction of annual costs.

In general, it is more advantageous to personally own a car that is worth less than $55 000.00 before taxes. It is also the case if your personal use represents more than 50%. You can charge your corporation a monthly fee per kilometre of business use.

These payments are non-taxable for you, up to $500 per month. Each situation must be looked at as there are many rules to consider. Whatever you do, keep a detailed log of your business use.

Reduced cost of non-deductible expenses

Your corporation uses pre-tax money to pay certain non-deductible expenses. This is less expensive than paying for these out of your personal pocket.

When incorporating a Quebec business, it’s important to get legal advice.

The possibility of doing an estate freeze

This allows you to sell your shares of the corporation to your kids, grandkids, or key employees at a set price. They benefit from future value appreciation. The option to pay a non-taxable death benefit up to $10 000 to a key employee: yourself.

All you need is an employment contract with your corporation.

Access to various R&D tax credits

You are developing new technology? R&D tax credits can amount to a lot of money for your corporation. They consist of reimbursable tax credits for salaries and wages paid for the research. They also apply to sub-contracted R&D.

Access to various tax incentives for investment and job creation

Both Federal and Provincial governments have many programs which can help your corporation save a lot of taxes.

There are more fiscal benefits available for a small business corporation. It would take too much space to list and detail them all. Please contact your professional advisor to further discuss this matter.

To benefit from a maximum of tax breaks, as well as investment tax credits and other benefits, a small business corporation must be a Canadian-controlled private corporation.

This means that the corporation is private: it has no more than 50 shareholders. It is not controlled by one or more non-residents of Canada. Other rules also apply.

Advantages Related to the Protection of the Corporation’s Assets

Creating a business corporation results in the creation of a moral person. This legal concept produces an entity, your corporation, which owns its assets. A corporation can also sue people or other corporations and be sued.

A shareholder’s liability is limited to the value of his investment in the corporation. Beware of personal guarantees you may have to give to obtain financing for your corporation. A director of the corporation can be sued in certain circumstances.

Incorporating a Quebec Business

A business corporation is an eternal entity. Unless it is dissolved, shut down or goes bankrupt, it can live forever. This allows for easy inter-generational wealth transfers.

It is easier to finance a corporation than to get personal financing for a business venture. Financial institutions would rather fund your corporation than you. Lower corporate tax rates and other tax deductions make it easier for your corporation to reimburse a loan than it is for you.

A corporation facilitates your estate planning. It is easy to transfer shares to your loved ones. A corporation facilitates the liquidation of your estate. It is easy to sell or transfer shares of your corporation.

Disadvantages of the Small Business Corporation

In view of the many advantages (and there are more) of doing business through a corporation, let us mention that the few disadvantages should not stop you from incorporating your business.

The corporate veil (the limited liability you have as a shareholder of the corporation) can be lifted by a tribunal in some circumstances. Unless you have shady plans, you have nothing to fear.

The corporation owns the business assets. You cannot use these assets without tax consequences. If the company owns a car, you will have to declare a taxable benefit for your personal use of the vehicle.

A personal guarantee can sometimes be required to get a loan for your corporation. This is the case if your corporation does not own sufficient assets of its own to secure its own loans.

Incorporating a Quebec Business

Initial and annual maintenance fees are required to maintain the existence of your corporation. Annual corporate financial statements and tax filings are required.

However, these expenses are all deductible and do not amount to serious amounts.

The benefits of being incorporated largely outweigh the few disadvantages and costs required. If you need help with incorporating a Quebec business, reach out.

This article is for informational and educational purposes only. It does not constitute legal advice. Laws and regulations change constantly. For individual legal advice, please contact  Pierre de Boucherville at: pdeb@ddpqc.ca