Corporate Tax Law

Starting a corporation is a natural and very important step in development of any business that has the possibility to become too large for a company. Still it is not easy, when starting a corporation you need to define the type of shares, invite shareholders, appoint the direction, accumulate capital and what is most important deal with taxes of the corporation. If, when establishing a corporation, you need a lawyer already on the first stage of the process, when dealing with corporate tax, don’t even start thinking about it without professional legal support. The laws related to taxation of the corporations are considered to be the most complicated in the whole Canadian Law and it is quite understandable. A corporation (especially an international one) is a very serious power capable to commit huge frauds, damage the economy of a country and even trigger conflicts. Many people point on the Global Crisis as a result of careless development of corporations. To avoid these serious consequences the main laws regulating the development and status of the corporations are gathered in the Canada Business Corporations Act. The tax related regulations can be found in sections 123 to 219 of the Income Tax Act, labeled as: "the rules applicable to corporations." While we already see two Acts regulating the corporate taxation and the corporations itself, each province has its own corporate tax laws, interrelated to the federal Income Tax Act. It means that to deal with corporate taxes you not only need a lawyer experienced in this field, but a lawyer experienced in that field for the required province. As for some specific examples of complexity, it will be extremely hard for the owners of the corporation, because they need to submit both personal and corporate tax returns each year. It doubles the work for accountants and therefore increases the accounting fees. In Canada the corporate losses cannot be deducted from the owner's personal income and also the corporations are not eligible for personal Canadian tax credits. The corporate owners will have it very hard for them, but it is all basically a big anti-fraud mechanism.

Still there is no need to be too scared, there are many corporations that exist in Canada and it means that there is nothing too complicated about the Canadian Corporate Tax Laws. Canada also has very positive attitude towards Scientific Research and Experimental Development program. The taxation of these spheres is extremely attractive and there is even no income required to qualify for the SR & ED program. Another bonus is available to the Canadian-controlled private corporations: the claiming of small-business deduction on all active business income earned in Canada. They have a 12% Canadian federal tax rate for $300,000 income over a four-year period. The limit was increased in 2003 from $200,000. The corporations in Canada can pay the funds directly to owners and shareholders-through the use of dividends instead of salary it will have a positive effect on corporate taxes and personal income taxes.