Starting a Business in Canada – Part 2 of 2

This article is continued from Jenny’s first article, “Starting a Business in Canada – Part 1 of 2”.


A frequent cause of personal financial difficulties is the failure of a business and the attendant business-related liabilities personally owed by the company owner. Here are some simple suggestions to preemptively protect your personal assets in the event the business fails:

1. As we suggested in the previous section, consider incorporating the business. Incorporation will provide you with a level of creditor protection. So long as you’ve been current on paying your statutory liabilities (listed in the previous section) and those creditors for which you gave a personal guarantee, you’ll be personally protected from your other business debts.

2. Consider transferring personal assets to a spouse’s name or a family trust. After the transfer, these assets no longer owned by you and are therefore not subject to claims of your personal creditors.

3. If you are putting away money for retirement, consider investing in RRSPs that are exempt from the claims of your personal creditors; for example, segregated funds. The distinction between segregated funds and mutual funds is that segregated funds are insurance contracts. The Ontario Insurance Act provides that:

“where the beneficiary of the insurance contract is a spouse, child, grandchild or parent of a person whose life is insured… the rights and interests of the insured in the insurance money and in the contract are exempt from execution or seizure…”

Therefore, insurance products held in RRSPs will be exempt from seizure by your personal creditors.

A very important point: you should make these arrangements before you get into personal financial trouble, not after you’ve become exposed to personal debts. If you were to say, transfer your home to your spouse when the bank is trying to collect on the personal guarantee you gave to them, these arrangements will not work. There are laws that can set aside transfers of assets where the intent is to hide your assets from your creditors as they’re trying to collect their debts.

Therefore, make arrangements to protect yourself personally with these tips before you open the doors to your business, not after you’ve closed them!


Finding a location

Many entrepreneurs start their businesses from home. If that suits you, then read no further.

However, if you require actual business premises, you should consider the following factors:

* How will your customers get to you? Is it conveniently located by public transportation? Is there free parking?
* How much space will you need to operate?
* What is the reputation of the landlord? Do they regularly maintain the upkeep of the building premises? You don’t want to turn off potential customers because they think your place looks like a slum.
* How are the views and lighting? You don’t want rent a place with a view of the wall from the next building. You want to create a nice work environment for your staff so they’re happy and productive.
* Will you be able to get the landlord to waive a personal guarantee for the lease?

After considering these factors, review the price per square foot and negotiate a mutually agreeable arrangement with landlord. For example, you may be able to get at few months free rent as part of the final lease agreement.

Interviewing and hiring staff

Getting people to submit resumes is always easy. Hiring the right person out of that stack of resumes is not.

It’s been said that the first thirty seconds of a job interview will ultimately determine if the candidate gets the job or not. You either like someone or you don’t. However, even though you might “click” with the candidate, it would be a mistake to hire someone without performing a thorough background check.

It is important that you verify a candidate’s employment history and references as well as their educational background. Even if their previous job experience and educational background have no bearing whatsoever on the position that they’re applying for, it is crucial that you confirm that they’re being truthful to you. If not, then this is a significant character flaw – if they can lie to you so easily, they can just as easily steal from you.

You should also consider performing a credit history search and criminal background check. It is not unusual to meet job applicants who filed bankruptcy or who’ve been convicted of a criminal offence. Everyone has made mistakes in their life and you should not necessarily hold this against the applicant. The honest ones will usually tell you up front about their past before you even perform such a background check. That being said, it is a factor for you to consider in making your final hiring decision.

Advertising your business

Whether you advertise using “traditional” methods like print media and television, or “modern” methods such as internet advertising depends on your audience.

If for example, you are targeting an older demographic (say over 55 years), then traditional advertising may be the way to go. On average, this demographic tends to spend more time reading newspapers and watching television than younger people.

On the other hand, if you are targeting a younger demographic, then internet advertising may be the way to go. It is not surprising that traditional print media like newspaper companies and television stations are in serious financial trouble. Their audience (and advertising revenue) is shrinking because more people are getting their news and entertainment through the internet.

Advertising in print media like the Yellow Pages or in newspapers can be very expensive (especially in a market like Toronto). From our personal experience, we’ve found that advertising on the internet is the most effective and cost efficient way to reach out to our audience.

There are many freelancers who can help you design and place a website on the internet. However, you also want people to find your website when a prospective customer types in a search term into a search engine like Google or Yahoo! For this, you’d need to hire a Search Engine Optimization consultant (SEO).

An SEO will essentially make your website more “searchable” by search engines. This is usually done by, among other things, integrating certain keywords into the text of your site, building “links” to your site from other websites, creating “cost per click” web advertising campaigns with Google Adwords or Yahoo Search Marketing, and listing your business in Google’s Local Business directory



* If you provide a good or service in Canada and your annual revenue will exceed $30,000, you’re required to register your business and collect GST
* If you’re operating as a sole proprietor or you are the director of a corporation, you’ll be personally liable if you don’t collect and/or remit.


* If you sell goods to “end-user” consumers (as opposed to reselling to another business), you’re required to collect and remit provincial sales tax
* If you’re operating as a sole proprietor or you are the director of a corporation, you’ll be personally liable if you don’t collect and/or remit.

Payroll tax

* You are required to deduct income tax, CPP and EI withholdings from your employees’ wages and remit these withholdings to the Canada Revenue Agency every pay period
* You are also required to pay CPP and EI premiums, calculated as a percentage of your employees’ wages
* If you’re operating as a sole proprietor or you are the director of a corporation, you’ll be personally liable for failure to remit withholdings and/or premiums to the Canada Revenue Agency

Corporate Income Tax

* The federal corporate tax rate is 38 percent of net income
* If you’re operating as a Canadian Controlled Private Corporation (essentially a company incorporated in Canada whose shares are privately owned by a Canadian resident), this rate is reduced to 28 percent
* For the first $500,000 of net income earned by a CCPC, there is a further reduction to 11 percent
* In Ontario, the provincial corporate tax rate for a CCPC is 14 percent of net income. The first $500,000 of net income earned is taxed at 5.5 percent
* The combined federal and provincial corporate tax rate in Ontario on net income under $500,000 is 16.5 percent
* There is no director liability for non-payment of corporate income tax.



* Employers contribute to WSIB, which is a provincial insurance fund.
* The amount of premium payable is based on the size of your payroll and the accident experience in your industry. For example, a mining company will pay a higher premium for its employees than an accounting firm
* Injured workers are compensated by the WSIB on a “no fault” basis; that is, compensation is paid no matter who is at fault, the employer, the employee or someone else. In return for automatic compensation, the employer is shielded from any other liability. An employee cannot sue your company for negligence if that negligence causes a work-related injury
* The main focus of the WSIB system is to get the injured employee back to work as soon as possible. If injured employee cannot perform his or her regular work, your company may offer suitable modified work that the worker can perform without aggravating the injury. If the work is, in fact, suitable the injured worker must accept it.
* There is no director liability for unpaid WSIB premiums of a corporation

Wages and vacation pay

In Ontario, your obligations to your employees are governed by the Ontario Employment Standards Act. You are required to give your employees:

* Two weeks vacation
* Termination pay, which increases with the length of employment
* Severance pay where: (1) an employee has worked at your company for at least 5 years and; (2) your annual payroll is $2.5 million or more. The amount payable increases with the length of employment
* If you’re operating as a corporation, a director of the corporation is personally liable for up to 6 months’ unpaid wages and vacation pay


Segregation of duties

The basic concept is this: the person responsible for the recording of assets coming in and going out of your company should not be the same person who handles those assets. For example:

* The person who approves invoices for payment should not be responsible for writing and signing cheques. He has an opportunity to defraud the business by making payments to fictitious companies
* If the purchaser orders and receives the goods, he can place an order for more than is needed and keep the rest.
* If the person who writes the checks handles the bank reconciliation, no one will know if he writes checks to himself or relatives.

When starting out your business, this usually won’t be an issue as you will be the only employee along with perhaps a handful of staff. However, as your company grows and you hire more staff, internal control through segregation of duties becomes extremely important.

Periodic Financial Statements

This would include a balance sheet, profit & loss statement and cash-flow statement. It is crucial that you regularly monitor your businesses’ financial performance on a periodic basis. This is particularly important during the first few years of business – you need to know if you are making money or losing money, and when to call it quits if you’re operating at a loss.

Ideally, you should prepare financial statements on a monthly basis, so you can make the necessary adjustments to your business operations if you determine that you’re spending too much in certain areas or whether your sales targets are being met. If you wait until the end of your business year to prepare the financials, you may not realize the problem areas in your business operations until it’s too late.


As a professional accountant in Toronto, Canada, the country’s largest city and financial and business capital, I have come across many poor souls who’ve lost everything after having failed in business. This article was written to assist the reader in avoiding the pitfalls that hinder many entrepreneurs. However, it is an overview rather than a complete analysis of issues facing a prospective Canadian entrepreneur. Before applying any of these suggestions, consult your professional advisor. If you reside in Toronto and are looking for a Toronto accountant, please contact the writer directly.

© Copyright Jenny Lin, CGA 2009.