Online Incorporation in Canada: What Is Still Left to Do

What does an online incorporation leave you with?

An online incorporation creates the corporation: the registry issues a certificate of incorporation and keeps the articles you filed. For a federal corporation and most provincial ones, the CRA also assigns a business number and a corporation income tax account automatically (CRA). The corporation's internal setup comes next, and it is the owner's job unless the package did it (Corporations Canada).

Corporations Canada says to share the corporation key only with people authorized to file, and to request a new one when someone loses that authority. If a service filed for you, find out who holds it.

A case is not simple when money has already moved but no shares were issued, the owner has taken money out, there are two or more owners, an owner lives outside Canada, a sole proprietorship's assets are moving in, a federal corporation must still register in a province, or the first year-end or first dividend is near and the books are not started. Gather the certificate, articles, Form 2 or provincial equivalent, the corporation or company key, everything in the online account (signed and unsigned) and the corporation's bank statements since incorporation.

Were the by-laws, first resolutions and share issue done?

Check for three signed things: by-laws, a directors' resolution issuing shares, and proof the shares were paid for. If one is missing, the directors can still pass it; whether it can take effect from an earlier date, or cover money already deposited or taken out, depends on the facts, and a corporate lawyer can confirm. Until shares are issued, the corporation's records show no shareholder.

For a federal corporation, the Canada Business Corporations Act lets the first directors make by-laws, adopt forms of share certificates and records, authorize share issues, appoint officers and an auditor, and set up banking. A resolution in writing signed by all the directors is as valid as one passed at a meeting (section 117). By-laws take effect when the directors pass them and need shareholder approval at the next meeting (Corporations Canada).

A share cannot be issued until it is fully paid in money, or in property or past services worth the same; a promise to pay does not count (section 25). Directors who approve shares for property worth less than that are personally liable to the corporation for the shortfall, for two years from the resolution (section 118). Paying for shares with property, such as a sole proprietorship's equipment or client list, can also be a taxable sale by you unless you and the corporation file a joint rollover election (Form T2057) by the earlier of your two return due dates for the year of the transfer (Income Tax Act, section 85); see moving a business into a corporation before anything is transferred. The directors' resolution sets the number, class and price; each shareholder is entitled to a share certificate. The share classes themselves were fixed in the articles; see share classes when you incorporate. Each province's corporations act has its own version of these rules.

What goes in the minute book now, and who keeps it current?

The directors keep the minute book current; nobody else does unless hired to. A federal corporation must keep its articles, by-laws, minutes and resolutions of shareholders and directors, copies of its notices of directors, and a securities register (the list of who holds which shares) at its registered office or another place in Canada the directors choose (section 20). It must also keep adequate accounting records for six years after the end of the year they relate to. For the full list and how your accountant uses it, see the minute book for a new corporation.

When is the corporation's annual return due, and what if it is missed?

The annual return is a registry filing, separate from the T2. A federal corporation files with Corporations Canada within 60 days after its incorporation anniversary; the online fee is $12 (Corporations Canada), and a return filed before the anniversary is not accepted (policy). An Ontario corporation files its annual return in the Ontario Business Registry within six months after its tax year-end (Ontario; notice). Before that, it files an Initial Return there within 60 days after incorporation, then a Notice of Change within 15 days of any change to its directors, officers or office address (Ontario notice). Other provinces set their own dates.

A federal corporation in default for one year on a required filing can be dissolved after 120 days' notice (section 212); Corporations Canada's policy is to wait until two years are missed. Provincial deadlines and late-filing steps are in the corporate annual return.

Do I need an individuals with significant control (ISC) register?

A federal corporation must keep a register of individuals with significant control and file it with Corporations Canada (Corporations Canada). An ISC holds 25% or more of the voting shares or of all shares by fair market value, alone or jointly, or otherwise controls the corporation in practice (control in fact).

• What it holds: each ISC's name, date of birth, citizenship, tax residence, residential address, the dates they became or stopped being an ISC, and how they control the corporation (section 21.1).
• When to update it: at least once a year, and within 15 days of learning of a change.
• What to file: the ISC information at incorporation (check what the service entered), with each annual return, and within 15 days of a change to the register (section 21.21). Some of it is made public; an ISC who does not want their home address published can give an address for service instead.

A sole owner is usually the only ISC, but the register is still required. An Ontario private corporation keeps its own register at its registered office, updates it yearly and within 15 days of a change, and does not file it with a registry (Ontario). Other provinces have their own rules.

Does a federal corporation also register in its province?

Yes. Provincial law requires a federal corporation to register in each province or territory where it carries on business; Ontario, Nova Scotia and Newfoundland and Labrador forms are filled during federal incorporation, but confirm with the province (Corporations Canada). See federal or provincial incorporation.

Which CRA accounts does the new corporation need?

Every corporation has a business number and a corporation income tax (RC) account; GST/HST and payroll accounts depend on what it does. Opening them and fixing a wrong one are covered in after you incorporate.

• Business number and corporation income tax (RC): automatic for federal incorporations and the provinces in the first table; a corporation formed in any other province or territory registers for both itself (CRA).
• GST/HST (RT): generally required once taxable sales, counting those of associated businesses, pass $30,000 in a calendar quarter or over four consecutive quarters; some businesses, such as taxis, must register from the first sale. Below the limit, a corporation making taxable sales may register voluntarily (CRA). Which sales count and the deadline are in when to register for GST/HST.
• Payroll (RP): required before the first remittance due date if the corporation pays salary, wages or bonuses (CRA). See owner-only payroll.

Directors are personally liable, with the corporation, for payroll deductions and GST/HST it fails to remit, unless they took reasonable care to prevent the failure; the CRA can pursue a director until two years after they stop being one (Income Tax Act, section 227.1; Excise Tax Act, section 323).

When is the first T2 due, even with no income?

Every corporation, including an inactive one, files a T2 for every tax year, even with no tax payable, within six months after the year ends (CRA). A new corporation picks its first year-end, but its first tax year cannot run longer than 53 weeks from incorporation (CRA). Any tax owing is due earlier than the return: two months after year-end, or three months for a CCPC that meets the CRA's conditions (CRA). Quebec and Alberta run their own corporate tax, so a corporation with a permanent establishment (a fixed place of business) there also files a provincial return (CRA). Alberta's is due six months after year-end; a CCPC with no taxable income, no establishment outside Alberta and gross revenue of $500,000 or less may be exempt if it meets the other conditions (Alberta Corporate Tax Act, section 36). See the first corporate tax year, incorporating in Quebec and incorporating in Alberta; the incorporation fees are handled in incorporation costs.

How should the corporation's books start from day one?

Run every dollar through a bank account in the corporation's name, and label each dollar the owner puts in or takes out. The corporation must keep adequate accounting records (section 20).

• Money in: either payment for issued shares, recorded as share capital (the stated capital account for that class) (section 26), or a loan from the owner the corporation can repay.
• Money out: salary through payroll, a dividend, repayment of money the owner lent the corporation, or a loan to the owner.
• Dividends: only the directors can declare one, by resolution, and they cannot delegate that power (section 115(3)); the corporation must also pass a solvency test (section 42), and directors who approve a dividend that fails it are personally liable to restore the amount to the corporation, for two years from the resolution (section 118). Issue T5 slips by the last day of February after the dividend year (CRA). Steps are in declaring and paying a dividend.
• Money out with no label: usually recorded as a loan to the shareholder. Such a loan is generally added to the shareholder's income unless repaid within one year after the end of the corporation's tax year in which the loan was made and not part of a series of loans and repayments; a few narrow exceptions exist (Income Tax Act, section 15).

Entries are in books for a new CCPC.

Which items come back every year?

Most duties repeat on two clocks: the incorporation anniversary for the registry and the fiscal year-end for the CRA. Federal rules are shown, plus Ontario's annual return date; other provinces differ.

What these filings and the yearly books and T2 usually cost is in the cost to incorporate in Canada.

Example

These examples are illustrative and use Canadian dollars.

A federal corporation with shares never issued

A Toronto developer incorporates federally online in March. The account holds the certificate, articles and Form 2, but no signed resolutions. She has already deposited C$5,000. The directors' resolution adopts by-laws and issues 100 common shares to her for C$100, paid out of that deposit; the other C$4,900 is recorded as her loan to the corporation. A shareholder resolution approves the by-laws, and the ISC register lists her. She confirms with Ontario that its registration was filed. With a December 31 year-end, the first T2 covers March to December and is due by June 30; the first annual return is due within 60 days after the March anniversary.

An Ontario corporation with no revenue

An Ontario corporation formed online in June has a December 31 year-end and no sales. Its Initial Return was due in the registry within 60 days of incorporation; if it was never filed, it files it now. By June 30 it still files a nil T2 for June to December, and its annual return in the Ontario Business Registry. Its ISC register is kept at the registered office. With no sales, it need not register for GST/HST yet; if it registered anyway, it files GST/HST returns even with nothing to report.

Withdrawals called dividends with no resolution

An owner moved C$30,000 to her personal account during the year and called it dividends. No directors' resolution exists and no T5 was issued. At year-end the withdrawals need a label the records support: a dividend the directors declare by resolution, if the corporation passes the solvency test, with a T5; a salary or bonus run through payroll; or a debt she owes the corporation, less anything the corporation already owed her. Whether a resolution signed after the money moved can cover earlier withdrawals depends on the facts; see dividends before or after year-end. If it stays a debt and is not repaid within one year after the end of the corporation's tax year in which the loan was made, the amount can be added to her income.

Different for you?

• You took money out or paid dividends with no resolution: see shareholder loans and get corporate tax help before the year-end.
• Your first year-end has passed and the books are not started: see catching up on overdue books and bookkeeping help.
• Your first T2 or first dividend is coming up: see the first corporate tax year and get corporate tax help.
• You missed an annual return or got a dissolution notice: see reviving a dissolved corporation and get corporate tax help for any overdue T2s.
• An owner lives outside Canada: see non-resident owners of a Canadian corporation and CCPC status for a new corporation, and get corporate tax help.
• You filed T5 slips late or never issued one: see late T4 and T5 slips.
• You have not incorporated yet: compare incorporating yourself or using a lawyer.