More than 2.6 million people are currently self-employed in Canada. Many of them have chosen to incorporate.
Our intention in this blog is not to promote one type of business structure, nor give an opinion on the advantages of incorporating.
The main purpose of this blog is to caution some self-employed individuals or small businesses who use their company’s bank account as if it were their personal account.
With the arrival of spring, or the company’s fiscal year end, the self-employed individual makes their way to the accountant with their invoices and bank statements in order for the corporate tax returns to be prepared.
Discussions have to take place with the accountant in order to determine where to allocate expenses. The distinction between personal expenses and company-related expenses should be done. Regretfully this is not always the case.
Tax returns are completed and signed. In turn, the assessment typically concurs with the filled returns. In some cases, when the distinction between personal and company expenses has not properly been attributed, there is a false impression that everything is in order.
Both self-employed and incorporated businesses are not immune to random audits by Canada Revenue Agency (CRA) or Revenu Québec (RQ) for Québec companies. During an audit, the agent will examine the legitimacy of each expense and will determine if they are truly a company expense. If not, they will calculate a new assessment. In many cases, more than one year is audited, which could result in significant amounts owed in interest and penalties. In cases, where personal expenses were allocated to the company, the audit may lead to a new personal notice of assessment.
Directors of a corporation are often surprised to receive a notice of assessment in their personal name. Notwithstanding rejected corporate expense, directors could also be liable for any portion of claimed provincial and federal sales taxes once the expense in question is rejected by the fiscal authority if the company fails to pay any reassessed amounts to CRA or RQ.
If the director or the company is unable to pay the amounts owed, it is probably time to consult a Ginsberg Gingras Licensed Insolvency Trustee in order find a solution in order to settle the amounts owed. Waiting will only make the situation worse with accruing interest and penalties and could eliminate some alternatives remedies to filing for bankruptcy.
The first meeting (in-person or virtual) is free, with no obligation and is completely confidential.
You can also schedule an appointment at your convenience by clicking https://ginsberg-gingras.com/en/book-an-appointment/