• Last Updated:
  • Dec 5th, 2017 2:00 pm
[OP]
Newbie
Feb 25, 2017
5 posts

incorporation question

Hello everyone,

I have a question regarding incorporation and small business.

My partner and I are about to incorporate our small business
We are located in QC
It's a retail business (Car dealership)
We are not planning to have huge revenue/profit

We are wondering if we can set up the corporation to rent a small office and lot, pay permits and license etc but subcontract most of the work (and profit) to ourselves as independent contractor ( IE the corps owns the car, but subcontract the act of selling to ourselves and makes only a small profit and the independent business makes most of it) My thinking was that either the corp would issue a T4A for the 2 subcontractor or we would just bill the corp with our independent business.

Is this possible? are there anything that would prevent this kind of arrangement?
The goal for us is to share the fixed cost with the corporation but work at our own pace each separately from the other and so we could each deduct our personal expense (part of the mortgage , personal phone etc) in our own subcontractor registered business (that one would probably not be incorporated)
This is really the only reason we want to do it this way, if not we would only be able to deduct the expense of the corporation and not that of the two partner's personal expense since most of the work will be done from home online etc

We are also wondering if a corporation would be necessary, or would a simple partnership be sufficient?

Thanks for the help and I'm sorry if I'm not clear in any way!
6 replies
Deal Addict
User avatar
Mar 23, 2008
4959 posts
2452 upvotes
Edmonton
You should probably sit down with a real accountant to give advice based on your actual situation.

But my first thought was that you'll have to personally guarantee the lease on any property you try to rent, because your corporation wouldn't have any history or real assets. This may complicate my last point (how to dissolve if one person wants out) in particular, and increase the personal risk to each of you (as in, you could each be personally liable if the rent isn't paid for the entire lease term).

Second, your "independent contractor" idea may be suspect, depending on how the CRA choses to interpret the relationship. If you're considered a "personal services business", some/many of your deductions may not be allowed. Again, talk to an accountant about your risks.

Third, you'll want to figure out "worst case" scenario's. How to dissolve the relationship, if things aren't working out. Hopefully it won't come to a dispute, but you'll want to have it spelled out in advance.

C
Deal Addict
Feb 5, 2009
2397 posts
554 upvotes
Newmarket
Fourth, you are in Quebec, you may have provincial regulations to deal with which may not apply to the rest of the country. Speak to accountant in Quebec.

Cost sharing partnerships are very common and more cost effective than setting up a corporation just for that purpose, especially with low volumes.

If your volumes get to the point that is worth incorporating, you may consider incorporating yourself and not the cost sharing entity, this will have potential tax advantages to you since you will be making a profit and not the partnership.

Speak to accountant in Quebec to make sure you are ok to do anything like that in your province.
[OP]
Newbie
Feb 25, 2017
5 posts
CNeufeld wrote:
Nov 22nd, 2017 2:24 pm
You should probably sit down with a real accountant to give advice based on your actual situation.

But my first thought was that you'll have to personally guarantee the lease on any property you try to rent, because your corporation wouldn't have any history or real assets. This may complicate my last point (how to dissolve if one person wants out) in particular, and increase the personal risk to each of you (as in, you could each be personally liable if the rent isn't paid for the entire lease term).
I forgot to mention that the person leasing to us is a friend and we will probably have no contract so that would not be an issue I think.

Second, your "independent contractor" idea may be suspect, depending on how the CRA choses to interpret the relationship. If you're considered a "personal services business", some/many of your deductions may not be allowed. Again, talk to an accountant about your risks.
That's what I was afraid of, I'll have to see an accountant for sure
Third, you'll want to figure out "worst case" scenario's. How to dissolve the relationship, if things aren't working out. Hopefully it won't come to a dispute, but you'll want to have it spelled out in advance.

C
Yes that's another point, Thanks a lot for the information! Next step is a meeting with an accountant
[OP]
Newbie
Feb 25, 2017
5 posts
Homerhomer wrote:
Nov 22nd, 2017 3:41 pm
Fourth, you are in Quebec, you may have provincial regulations to deal with which may not apply to the rest of the country. Speak to accountant in Quebec.

Cost sharing partnerships are very common and more cost effective than setting up a corporation just for that purpose, especially with low volumes.

If your volumes get to the point that is worth incorporating, you may consider incorporating yourself and not the cost sharing entity, this will have potential tax advantages to you since you will be making a profit and not the partnership.

Speak to accountant in Quebec to make sure you are ok to do anything like that in your province.
Yes believe me I know Quebec can be a mess, thanks for the info we will probably be doing a cost sharing partnership if the independent contractor idea doesn't pan out.
Thanks for the help!
Jr. Member
User avatar
Aug 15, 2015
171 posts
28 upvotes
Markham, ON
Parlez-vous francais?

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