What are the CRA Accounts required and Optional when opening up a New Corporaton?
There are 3 Different Tax Accounts:
RC - main tax account
Automatically assigned when incoporating a new corporation
you do not need to register for an RC account, its automatically opened
Correlates to a corporations Income tax
Equivilent to the income tax that you pay on annual earnings
BN or Business Number, is a federal tax ID assigned to a corporation which is 9 digits long.
it will have a trailer such as RC0001- you can have seperate accounts opened under an business number in which they will be in sequence - RC0001 RC0002 and so on.
The Optional Accounts - Pros & Cons
RT- GST or HST account - Excise Tax Account
This is optional and is not automatically opened for you
Now the big question is should you register for a GST/HST account before hitting $30,000 in world wide sales?
Going against doing so, is the fact you will burden your customers with an extra 5% (GST), (upto 13% HST) extra payment.
However as a registrant the ITC (Input Tax Credit system) is available to you that you can reclaim on your valid expenditures (the tax that you paid on expenses)-
A big determinant would be are you taking on commercial rent? If so your $6000 monthly rent in provinces that have HST is going to incur upto $780 monthly expinditure and other amounts as well. Do we want to have this amount back and deduct from HST paid from clients?
If you have a service business probably not a good idea to incur the extra cost for your customers as you probably are not paying much in ITC's.
RP - Payroll Account - do not open unless you have employees or you are going to be an employee
Only two ways to extract funds from a corporation for a shareholder (beyond return of captal) is through salary or dividends
If you have a new company and will not be hiring employees for say 6 months or more then you will most likely want to hold off on the optional account Payroll until you are going to need it, as it is a burden for new clients.
Do you want to file a nil remittance each month on the 15th for payroll? (Depending on your directors payroll consideration)
Once the optional accounts are opened, you have an obligation to file, so more paperwork.
Payroll monthly , and GST either monthly, quarterly, or annually. Even if it is a nil (zero) return.
Did You Know:
Corporations only have 3 rates of tax as compared to a individual persons marginal rate.
12.2% if subject to the SBD (depending on province) (<$500,000 of active business income)
26.5% for General Rate Active Income above the amount for the SBD (>$500,000 active business income)
Up to - 50.2% for investement (passive) income -"rent, royalties, interest, dividends (non connected companies)