I'm looking for some advice. I bought a business consisting of a numbered corp. and a retial store. The store is a division of the numbered company.
When the purchase was setup between the lawyer, the accountant and the business Mgr at the bank, the store was to pay down the loan on the numbered company. It was explained to me that a company can buy and sell and own things just like a person can, therefore the store can pay the loan for the numbered Co.
Now I'm told that's not really correct and any money the store pays toward the loan would be considered personal income to me and should be taxed as such. In the beginning the advisors indicated when the loan was paid off the store would own the numbered Co. and if it was ever re-sold for profit, the profit from the sale would be taxed as a capital gain.
On Sat, 16 Jul 2005 18:18:10 GMT, in alt.accounting GearDown wrote in :
I'm not certain how Canada handles this, but in the United States, a division is just an operational distinction, not a legal or tax one. The store is one of the functions of the corporation. The corporation is paying off the loan.
I'm not certain what options you have or elected for income flow-through from the corporation, so I cannot comment on that. You'll need to talk with a tax advisor about it.
The store will always be a division of the corporation. The rest I don't really follow.
I don't believe that your beginning "advisors" gave you wrong information, I strongly suspect that you misunderstood. Who was "the accountant"? Did this accountant work for you? If so, call him now and get yourself straightened out immediately. Otherwise call "YOUR" accountant NOW - if you don't have one, get one. You need a competent professional accountant, not a bookkeeper.
You have it backwards. The numbered corporation owns the store (more correctly, the store is PART of the numbered corporation - at this time, it is probably the ENTIRE numbered corporation).
"Company" is a loose term meaning approximately the same thing as "business" (or "group of people doing something together" such as, for example, a theatre company in which the term might refer loosely to the entire cast and crew and management). In Canadian business, a "company" might be a corporation, a sole proprietorship, or a partnership. I recommend you avoid using this word as it may cause confusion.
A Corporation is a legal entity that can own property and must file tax returns. I'm quite sure this is what your "advisors" tried to explain, but you misunderstood - perhaps because they loosely used the word "company" when they should have said "corporation". As was explained, a division is, as the term implies, just a part of a corporation and does not have separate legal existence; a division cannot own property and does not file separate tax returns. Your "numbered company" is a CORPORATION that has been formed using a number as its legal name.
A sole proprietorship is just the business activities and business assets and business liabilities of an individual. A sole proprietorship is not separate from its owner and cannot own property and does not file tax returns.
A partnership is not a separate legal entity. It is the combined activities of a group of people working together in a business that is not a corporation. Each partner owns a portion of the business. When a partnership is said to "own property", actually all of the partners each own a portion of the property. Likewise a partnership debt is actually a total of amounts owed by all of the partners together.
These are the 3 principal forms of business in Canada. I've simplified a little as there are some types of business that can operate in ways that combine some of the characteristics of each of these 3 forms, but none of these apply to you.
The store cannot "pay the loan until it owns the numbered corporation" because the store is just a part of the corporation, the store is not a legal entity, and the store cannot own property by itself. "The store" is not paying the loan, the CORPORATION is paying the loan.
The loan payments are NOT "personal income to you". I don't know who told you that, but it seems so blatantly WRONG that I strongly suspect this is something else that you misunderstood.
The corporation CAN sell the store. This can happen at any time, either before or after the loan is paid off (in theory, although the bank will insist that any remaining loan balance be paid out of the selling price). Yes, any profit on the sale of the store would be taxed TO THE CORPORATION as a capital gain. However the transaction will be considerably more complicated than this suggests, and you'd better have a good accountant. Alternatively, you can sell the corporation (the shares of the corporation) at a capital gain (or capital loss).
Meantime, it is highly likely that you are taking some personal income out of the store and will be taxed accordingly. You'd better find out your tax liability pretty quickly. Talk to your accountant ASAP.
The lawyer and the accountant were hired by myself to advise me what I needed to know about buying the business and how to set up the accounting software. There was a number of training sessions so I could take care of the daily bookkeeping tasks, leaving the accounting tasks to the accountant. However, that accountant is no longer with us as it was discovered later, a number of things she set up were wrong. Example, I was drawing regular pay just like the employees, and she was deducting EI from the amount. I later discovered this was wrong because I'm the owner. So now I have to claw back the premiums deducted from my pay as well as the portion the company is required to pay.
I think I have a good accountant now but he does not do corporate tax returns. So, we have another one who does corporate returns, but unfortunately does not understand Quick Books or Simply Accounting to the degree I need to have to provide me with support.
Either you've given us incorrect or incomplete information, or your accountant is totally incompetent, or you have badly misunderstood. That is just plain WRONG according to the information you provided.
If you trust this accountant, why are you asking the questions here? If you trust this accountant, call and ask for a better and more complete explanation. If you don't trust this accountant, get another - FAST. If you aren't getting good advice from someone you know, and who knows you and your business, and whom YOU ARE PAYING, you certainly can't rely on advice you get here from people you don't know.
If it is a PERSONAL loan, NOT a loan to the corporation, THEN loan payments by the corporation would be personal income to you. But that is not what you told us.
OK, I give up until OP provides additional information.
Until then, I'll say one last time:
- What he described is utter nonsense and totally confused and wrong.
- Your comments are worse nonsense, totally confused and wrong - unless you and OP have more information that I somehow missed. Or unless you're not really trying to help but are just making a big joke out of it, in which case - VERY FUNNY!!!
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