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Moving Your Business from Operating as a Sole Proprietorship to a Corporation
SOLE PROPRIETORSHIP Moving Your Business from Operating as a to a CORPORATION
There are three main vehicles through which to operate a business: a sole proprietorship, a partnership and a corporation. Establishing a sole proprietorship is relatively costeffective and accordingly, an individual may choose to start to operate their business as a sole proprietorship and continue to do so until such time as the potential tax and liability considerations encourage them to make the move to separate from their business, through the incorporation process.
At that time, however, the sole proprietor has collected and accrued business assets which are necessary for the business to continue to operate through a corporation. Such business assets may include, but are not limited to: equipment, inventory, supplies, customer lists and/or goodwill. Those business assets need to be transferred to the corporation. That transfer is a taxable event which if not structured correctly, can incur unforeseen tax liability. With appropriate tax advice from a chartered professional accountant or lawyer who practices tax, this transfer of the business assets of the sole proprietorship to a corporation may be able to occur on a tax-deferred basis under Section 85 of the Income Tax Act (Canada) (the “Act”).
A transfer on a tax-deferred basis under the Act requires recognition of the cost paid by the sole proprietor for the assets being transferred, consideration to the individual (which must included shares of the corporation) and legal documentation including but not limited to a legal agreement setting out the terms upon which the transfer from the sole proprietorship to the corporation will occur.
This legal documentation is essential to definitively assert the value being transferred from the sole proprietorship to the corporation and provide evidence to support the intention of the parties should the transfer be challenged by a taxing authority.
KEVIN FERNANDES
Associate, Corporate/ Commercial
KMB Law
We at KMB Law work directly with your tax accountant or tax lawyer and are experienced at drafting the appropriate legal documentation required to effect a transfer from a sole proprietorship to a corporation, in a cost effective manner than enhances value for you, the client. Should you have any questions regarding this or any aspect of your business, please do not hesitate to get in touch – we are here to help.
The COVID19 Pandemic REQUIRED GOVERNMENTS AT ALL ORDERS TO Step Up to the Plate
With the enormous impact of COVID19 on Canada, all orders of government were required to develop support programs, financing and services to support individuals Canadians as well as businesses. This is the most significant economic event to hit Canada since the Great Depression and it has taken its toll on businesses in all sectors and of all sizes across the country.
Governments have endeavoured to react to the impacts of this pandemic through many different programs that are available for business.
GOVERNMENT OF CANADA
The Federal Government began its support program focusing mainly on individuals that had been impacted or lost jobs as a result of COVID19. The government increased the Child Tax Benefit, provided a special Goods & Services Tax (GST) payment, gave extra time to file Income Tax returns and asked the banks to provide mortgage support to Canadians. It then established the Canada Emergency Response Benefit (CERB) which provides up to $2,000/ month for individuals that have lost all income as a result of COVID19. Selfemployed persons and contractors are eligible for this program as well so long as they can demonstrate they earned at least $5,000 in income in 2019.
For businesses, the Government of Canada established the Canada Emergency Wage Subsidy (CEWS) program which provides a 75% wage subsidy for continued employment up to a wage of $58,700 for a maximum payment of $847 per week. The program was back dated to March 15, 2020 and is set to expire, unless renewed, on June 6, 2020. There is also a 10% wage subsidy program with fewer restrictions and the Government extended the federal work sharing program. It also deferred the timeline for payment of GST and corporate income taxes.
As well, the Federal Government established the Canada Emergency Business Account which provides loans backed up by the Government of up to $40,000 interest free for one year through the business’s local bank. The business must have payroll of at least $20,000 and maximum of $1,500,000 in 2019. For other businesses, the Federal Government established the Business Credit Availability Program administered through the Business Development Bank of Canada (BDC) and the Export Development Corporation (EDC). There are various criteria for these loans and financing arrangements so businesses should consult the organizations directly.
The Government of Canada has also announced directed support to certain sectors of the economy particularly hard hit by the COVID19 pandemic. More details and updates on these programs can be accessed at: https://www.canada.ca/en/departmentfinance/economic-response-plan.html.
GOVERNMENT OF ONTARIO
The Government of Ontario’s support program for businesses affected by the COVID19 pandemic mainly revolve around payment deferral programs for various taxes which would normally be paid to the Government.
Between April 1, 2020 and August 31, 2020, the Province will not apply any penalty or interest on any latefiled returns or incomplete or late tax payments under select provincially administered taxes, such as Employer Health Tax, Tobacco Tax and Gas Tax.
The Government of Ontario has delayed the June 30, 2020 education property tax remittance from municipalities allowing them to defer payment of property taxes by businesses. Workplace Safety & Insurance Board (WSIB) premiums have been deferred for up to six months
Step Up to the Plate
and the Province has increased the exemption for the Employer Health Tax (EHT) for 2020 from $490,000 to $1 million. As an employer, this means relief of up to $9,945.
From March 24 to May 8, 2020, residential, farm and small business time-of-use customers will get the lowest rate — also known as the offpeak price — 24 hours a day. That means you will pay 10.1 ¢/kWh no matter what time of day you use electricity.
As well, the Provincial Government has made changes to the Employment Standards Act to protect jobs for people affected by COVID19. Businesses would be well advised to consult those before pursuing any actions with their employees.
Perhaps the most significant act that has affected businesses in Ontario has been the Emergency Order and shot down of all non-essential businesses in the Province. For many businesses this means their income has reduced to zero as they are completely closed while other businesses struggle to have their employees continue to work, where possible, from home. The list of Essential Workplaces, which is subject to change, is available at: https://www.ontario.ca/page/ list-essential-workplaces?_ ga=2.19082748.554776955.1587039347- 1026373343.1587039347.
More information and updates on the Government of Ontario’s actions are available at: https://www.ontario.ca/ page/covid-19-support-businesses.
CITY OF MISSISSAUGA
The City of Mississauga has taken a number of important steps to support both individuals and businesses deal with the COVID19. Property tax payments have been delayed for 90 days from the due date as has the storm water charge (through the Region of Peel utility bill), the remittance of the Municipal Accommodation Tax (MAT) which hotels charge on overnight stays has been deferred for 90 days. The City also is providing free transit and suspending parking offences.
The Mississauga Economic Development Office has established a dedicated website for businesses for up to date information on their programs and services on the COVID19 pandemic at the local level. It can be accessed at: https://www.thefutureisunlimited.ca/ covid-19/.
The City of Mississauga has also closed parks and most open space areas and is aggressively imposing fines on people not obeying the law or social distancing requirements. Community Centres and other public buildings are also closed until further notice.
REGION OF PEEL
The Region of Peel level of government works alongside the local municipality on administering programs and services for Mississauga residents and businesses. The Region of Peel issues and collects the water and wastewater utility bills and it includes the Mississauga storm water tax. The Region has approved a deferral of the payment of these bills for 90 days from the due date along with the local municipality providing the regional portion of the property tax bill for 90 days as well.
The Region of Peel Public Health Unit is the primary go to place for updates and information as it relates to COVID19, local testing and treatment and support services. Their website can be accessed at https://peelregion.ca/coronavirus/.
SUPPORTING THE COMMUNITY
Businesses and individuals that are able are encouraged to support local organizations that are helping during this very trying time of COVID19. Here are a couple of that you may wish to consider supporting.
The Mississauga Food Bank - https://www.themississaugafoodbank. org/covid19donate/
Trillium Health Partners (Mississauga hospitals) - https://trilliumgiving.ca/donateppe/?utm_source=Bing&utm_ medium=Display&utm_ campaign=Covid19
The political ROUND UP
Local & Regional
THE MISSISSAUGA BOARD OF TRADE IS THE VOICE OF BUSINESS AT THE CITY OF MISSISSAUGA AND REGION OF PEEL LEVELS OF GOVERNMENT.
MISSISSAUGA STORM WATER CHARGE
The City of Mississauga continues to charge a levy to all residential and commercial properties based on the size of its hard surface footprint. This disproportionately affects businesses and partially subsidizes homeowners.
City Council has approved an increase to the levy in effective April 1, 2020 of 2% bringing the charge to $108.20 per billing unit up from $106.10 in 2019.
However, the City of Mississauga does have a credit program for commercial properties so that they can be rebated up to 50% of the levy if they perform improvements on the property that reduces or eliminates the flow of storm water into the municipal system and improves the quality of the storm water (reduces pollutants).
The Mississauga Board of Trade is also working with both the Credit Valley Conservation and Toronto Region Conservation Authorities to help larger property owners on ways to retrofit their properties in order to qualify for the credit program. A proposal is being developed to the Federation of Canadian Municipalities Green Fund which will hopefully result in some support in 2020.
City of Philadelphia model which has a much higher credit (up to 80%) and a grant program for property owners to offset the capital costs of storm water retrofits.
Credit Valley Conservation is working on a storm water program in the Southdown District of Mississauga bringing 13 property owners together on a joint storm water management program. This could be a significant turning point in the storm water program through the use of the Drainage Act and property owners sharing resources and property access.
Finally, City staff are working on a report to go back to Mississauga City Council in the spring of 2020 on improvements to the programs that will entice more commercial property owners to perform on site retrofits in order to qualify for the credit program. Increasing the level of the credit to improve the capital pay-back would be a welcomed improvement to the program.
To better understand and qualify for the rebates, please go to: http://www.mississauga.ca/portal/ stormwater/charge.
MUNICIPAL ACCOMMODATION TAX/TOURISM
The City of Mississauga introduced a four per cent Municipal Accommodation Tax (MAT) effective April 1, 2018. Council approved the new tax which will apply to stays for a continuous period of 30 days or less in a motel, hotel, lodge, inn, bed and breakfast, dwelling unit or any place that provides accommodation. Online private short-term rentals such as Airbnb and HomeAway are also subject to the MAT. Mississauga City Council has approved a model for Tourism Mississauga which will be owned by the city but operated by a Board of Directors appointed by Council. It is expected that this new entity will be up and operating by the end of May and can begin the work of marketing Mississauga as a tourist destination. It will have a budget of over $5 million per year and the City has already accumulated over $10 million which will be transferred over to the new agency.
It is estimated that this tax will generate over $10 million per year of which 50% must be dedicated to Tourism Mississauga. MBOT continues to advocate for full transparency for the use of this money and for full involvement of the industry stakeholders (hotels/motels) in determining where MAT money should be spent.
The City has already begun to spend the non-restricted portions of the MAT on things like supporting local festivals and special events. Mississauga City Council also recently approved allocating $1 million for the building of an Avro Arrow model which will be erected in Malton. MBOT would prefer to see a plan on the allocation of this money rather than one-off ad hoc activities and that they demonstrate that they generate tourists and overnight stays in Mississauga.
MBOT is also working with its partner association the Tourism Industry Association of Ontario to advocate for regulatory changes at the Province that will tighten up the rules and eligibility of the use of MAT money and to ensure Tourism Agencies are arms-length from local government.
MISSISSAUGA CLIMATE CHANGE ACTION PLAN
The City of Mississauga has adopted a Climate Change Action Plan to help minimize and prepare Mississauga for the impacts of a changing global climate. The Plan sets out specific goals the City wishes to achieve.
The first goal is Mitigation to reduce corporate and community GHG emissions 80% by 2050, as compared to 1990 levels, with a long-term goal of becoming a net zero community and position the City competitively in the emerging low carbon economy. As this is a ten-year plan, an interim GHG reduction milestone of 40% by 2030 has also been set.
The second goal is Adaptation to increase resilience and the capacity of the corporation and community to withstand and respond to future climate events by taking action on the highest climate-related risks.
On June 19, 2019, City Council passed a motion declaring a climate emergency in Mississauga. The motion outlined the City’s commitment to taking action on climate change and directed staff to develop and bring forward a climate change action plan to Council for approval.
MBOT is actively involved as a stakeholder in this to ensure the voice of business is included in the plan’s development. MBOT is a non-voting participating member of the City of Mississauga Environmental Action Committee.
The City of Mississauga is now looking at programs and services that could be offered to businesses to help them achieve GHG reductions and energy conservation. It will also partner with groups like Partners for Project Green which has access to funds for similar programs.
CANNABIS RETAIL STORES
The City of Mississauga decided at its December 12, 2018 Council meeting, that it will opt out and not allow privately-operated cannabis retail stores in Mississauga.
MBOT believes that this was a shortsighted decision and that Council, now armed with the success of the roll-out of cannabis stores throughout Ontario, should re-consider its decision.
Recent events and the rise of illegal dispensaries in Mississauga have led some politicians to ask that the City of Mississauga re-consider its decision to opt out. MBOT will continue its advocacy role to get Mississauga City Council to change its decision in 2020.
DOWNTOWN MISSISSAUGA PLAN IN THE WORKS
The City of Mississauga is creating a downtown for today and tomorrow. To do this, the City is developing a new guiding document called the Downtown Strategy. This Strategy will build on the success of the downtown core and provide direction for the future. It will reflect what people want to see – a vibrant place to live, work, learn, be entertained, raise a family and most of all, choose to be.
The Downtown Strategy seeks to set a vision and plan for Downtown Mississauga by answering the following questions:
What are the downtown’s strengths?
Where are the opportunities? (e.g. to make it easy to live, work, play, shop, gather and learn in the Downtown) What are our needs and aspirations for the downtown?
What is our vision for the future and what actions will get us there?
The Strategy will build on the Downtown21 Master Plan (2010) - a plan that first outlined a vision to transform the downtown from “suburban to urban” and laid the foundation for the current downtown core. For more information on the Downtown21 Master Plan, please visit www.mississauga.ca/downtown.
MBOT is actively engaged in this review and advocating for a strong balance of office and commercial development along with residential. The City of Mississauga has also approved a Community Improvement Plan for Downtown Mississauga which is hoped to spur on new commercial development in Mississauga’s City Centre.
VACANT & EXCESS LAND TAX CLASS ELIMINATION
The Region of Peel has decided to phase-out the property tax class for vacant and excess land meaning a 30% tax increase on these properties over two years. Vacant and excess land have enjoyed this lower tax rate for decades as recognition of its importance for future development and no pressure on municipal services. MBOT made a deputation to Peel Regional Council on December 13, 2019 arguing that the tax rate be maintained to encourage appropriate development of these lands in the future.
OFFICIAL PLANS
Both the City of Mississauga and Region of Peel are reviewing their official plans in 2020 which is a statutory requirement under the Planning Act. While most of Mississauga is developed, the Official Plan still sets out important terms for redevelopment and intensification as well as land use definitions. MBOT will be involved in these reviews to ensure that valuable employment lands are protected and that residential encroachment does not threaten existing business uses.
COOKSVILLE BUSINESS IMPROVEMENT AREA
Mississauga City Council recently voted to establish a fifth Business Improvement Area in the city. The Cooksville BIA will be created to help support businesses in this community. Business Improvement Areas are created through Provincial Legislation and their operations are funded through a special tax on businesses in the area. The Cooksville BIA will be located at the intersection of Hurontario Street and Dundas Street. It will extend along Hurontario Street from Floradale Drive in the south, to the train line and lands around the Cooksville GO Station in the north; and along Dundas Street from Confederation Parkway in the west, to Cawthra Road in the east.
NOISE BY-LAW REVIEW
The City of Mississauga is reviewing its two noise by-laws in an effort to modernize them and have them better reflect community concerns. MBOT is involved in this review to ensure that business operations are not unfairly affected by any proposed changes. While many businesses are adapting to environmental sensitivities some operations do create noise issues. The potential changes will cover aspects such as the complaint response process, residential and construction noise exemptions, permitted periods for amplified sound and noise thresholds.
provincial government
MBOT WORKS VERY CLOSELY WITH OUR PARTNERS AT THE ONTARIO CHAMBER OF COMMERCE (OCC) ON ISSUES WITH THE ONTARIO GOVERNMENT. OUR COMMITTEES WORK HARD LOOKING AT RESOLUTIONS, POLICY DOCUMENTS, GOVERNMENT ANNOUNCEMENTS ON CONSULTATIONS TO ENSURE THE VOICE OF MISSISSAUGA BUSINESSES IS ADVANCED ON PROVINCIAL ISSUES. MEMBERS OF MBOT ARE AUTOMATIC MEMBERS OF THE ONTARIO CHAMBER OF COMMERCE.
FOR MORE INFORMATION ON THE OCC, PLEASE VISIT WWW.OCC.CA.
TRUST IN REAL ESTATE SERVICES ACT
The Ontario Government has enacted legislation to update the laws for real estate professionals reflecting today’s market. Once in force, it will modernize the rules for registered real estate brokerages, brokers and salespersons. Ontario will continue consulting with consumers and the real estate industry over the coming months to develop the regulations that must be put in place before the act is brought into force.
Once proclaimed into force, the proposed changes to the act will enable regulatory changes to improve the information consumers receive about what a real estate professional and brokerage must do for them, and that would give consumers more choice in the real estate purchase and sale process. It will improve professionalism among real estate professionals and brokerages by allowing for regulatory changes to enhance ethical requirements. It will also update the Real Estate Council of Ontario’s (RECO) regulatory powers, including allowing it to levy financial penalties (also known as administrative penalties) to promote compliance with the act — and allowing RECO’s registrar to take into account a broader range of factors when considering eligibility for registration. The legislation will create a stronger business environment by laying the foundation for allowing real estate professionals to incorporate and be paid through the corporation while maintaining measures that protect consumers, as well as by enabling the creation of a specialist certification program that may be developed by government or by RECO.
LAND USE PLANNING RULES UPDATED
The Ontario Government has released an update Provincial Policy Statement (PPS) on Land Use which is designed to give municipalities greater flexibility and control over local decision-making to support new housing and economic development, encourage more and different types of housing and help ensure an adequate supply of land on which to build more housing.
The land development industry has long complained about the timelines for processing land for development, particularly for housing. The updated PPS is expected to speed up approvals by removing red tape and unnecessary regulations. These changes will not impact the Greenbelt, ensuring that it will continue to be protected for future generations.
SHAPING ONTARIO’S SMALL BUSINESS SUCCESS STRATEGY
The Ontario Government is conducting a Public Consultation Discussion Paper to look at issues and concerns of business in being successful in today’s economy. It recognizes some key challenges including the high regulatory compliance costs and operating expenses, lack of resources to invest in innovative or new technology, trouble navigating Canada’s complex export requirements and international rules, labour and skills shortages, closures, bankruptcy and job losses due to limited succession planning after retirement and access to capital to develop, test and commercialize new products.
ONTARIO ECONOMIC REPORT IDENTIFIES WAYS TO SUPPORT SMALL BUSINESS SUCCESS
Each year the Ontario Chamber of Commerce (OCC) publishes the Ontario Economic Report which reveals opportunities where both business and government can focus to create an environment more conducive to small business success. This year’s report highlights that the confidence gap, which measures the difference between business’ confidence in themselves and in Ontario’s economic outlook, widened in 2020 to near historical levels. Although organizational confidence remains high, business confidence in the broader economy dropped seven percentage points in 2020, explained in part by lowered growth expectations nationally and globally. Beyond this, challenges related to the costs of doing business, the high cost of living, and the province’s debt continue to be top of mind for OCC members.
Infrastructure investment, such as transportation and broadband internet, topped the list of business priorities for government, followed by reducing regulatory burdens, lowering the cost of living, and reforming business taxes. Challenges related to accessing financial capital, attracting and retaining talent and burdensome regulations continue to compromise the ability of many of Ontario’s community to compete effectively with other jurisdictions.
The CUSMA trade agreement has become the law in Canada along with the two partner countries of the United States and Mexico. Work on full implementation of the Agreement is being done by the three partners.
federal government
MBOT MEMBERS ARE ALSO MEMBERS OF THE CANADIAN CHAMBER OF COMMERCE (CCC) WHICH IS THE NATIONAL VOICE OF BUSINESS TO THE FEDERAL GOVERNMENT. MBOT STAFF AND COMMITTEES EXAMINE ISSUES AND RESOLUTIONS OF THE CCC AND PROVIDE MISSISSAUGA’S INPUT. MORE INFORMATION ON THE CCC IS AT WWW.CHAMBER.CA.
Despite these challenges, Ontario’s principal economic indicators remain sound, albeit subdued, heading into 2020, but economic growth is expected to vary greatly across the province. The forecasts show employment and population growth in the Greater Golden Horseshoe and Ottawa surpassing other parts of Ontario, reinforcing a decade-long trend of imbalanced economic growth across the province.
The inaugural Small Business Friendliness Indicator (SBFI) measures Ontario’s competitiveness from the perspective of small businesses. For 2020, the SBFI score is -9, (on a scale of 100 to -100) indicating that the business environment poses some challenges for firms with fewer than 99 employees. However, through measures such as investment in online services and support for regulatory compliance, industry and government could improve that score.
On November 30, 2018, Canada, the United States, and Mexico signed an agreement to replace the North American Free Trade Agreement (NAFTA) with the Canada-United
States-Mexico Agreement (CUSMA). This new agreement will reinforce the strong economic ties between the three countries and support well-paying middle-class jobs for Canadians. Subsequently, on December 10, 2019, Canada, the United States and Mexico agreed to update certain elements of CUSMA to improve the final outcome and clear the path toward ratification and implementation of the agreement in all three countries.
CUSMA will maintain the tariff-free market access from NAFTA, and includes updates and new chapters to address modern-day trade challenges and opportunities.
CANADA 360 ECONOMIC SUMMIT CALLS FOR FORWARDLOOKING ECONOMIC STRATEGY
The Canadian Chamber of Commerce’s (CCC) recent economic summit covered a lot of topics, but one common unifying thread emerged: Canada needs a clear, sober-minded and forward-looking economic strategy that provides for sustainable growth for all Canadians.
Based on the panelist’s exchanges, the business community identified eight priorities to attract investment to Canada, help create jobs and grow and strengthen our communities:
A regulatory system that works for everyone, including business Infrastructure and innovation to make Canada the most connected country in the world
A workforce with the skills, education and training to prosper
Access to new markets around the world and the elimination of trade barriers at home
A tax system that is fair, efficient and modern
Resources to help small and medium companies grow and succeed
Addressing climate change by lowering emissions and increasing energy supply
A healthier pharmacare system for healthier Canadians
EXPORT DEVELOPMENT CANADA RELEASES TRADE CONFIDENCE INDEX
Export Development Canada released a report recently that shows that Canadian trade confidence has fallen to its lowest level in 8 years and that trade protectionism remains a big concern for Canada’s exporters. Uncertainty over the CUSMA has lifted but global recession worries remain elevated. The report further stated that Canadian exporters are diversifying their exports with 68% going to the US, 11% to China, 7% to Germany, 6% to India, 5% to Mexico and 3% to the UK.
NEW FEDERAL DRUG RULES DELAYING MEDICINE LAUNCHES, JOB LOSSES
To help measure the impacts of the federal government’s new price controls for patented medicines in Canada, Life Sciences Ontario commissioned Research Etc., an established Toronto research firm, to conduct an anonymous survey of pharmaceutical and other life sciences leaders.
The survey, which drew on data from 46 respondents including leaders from 36 Canadian and global pharmaceutical companies, revealed unanimity on the negative impacts of the changes to the Patented Medicine Prices Review Board (PMPRB). These negative impacts include: delayed new medicine launches in Canada, particularly new cancer medicines, biologic medicines, and medicines for rare disorders; job losses across the life sciences sector and fewer investments in clinical research, patient support programs, and compassionate access programs – all vital means by which patients have better and early access to new treatments.
Some companies are already making these decisions in advance of the implementation date of the new changes of July 1, 2020.
