Accounting and tax support for incorporated contractors
Corporate year-end and T2 tax return
Every corporation must prepare annual financial information and file a T2 corporate tax return, even where the business is relatively simple.
We prepare the year-end financial statements, corporate tax return, and related schedules based on your bookkeeping records. We also review the corporation for matters such as:
- Salary and dividends
- Shareholder balances
- HST filings
- Capital purchases
- Home-office expenses
- Vehicle expenses
- Instalments and taxes owing
Keeping the books current throughout the year makes this process faster and reduces avoidable follow-up.
Salary and dividend planning
How you withdraw money from the corporation affects both the company and your personal tax return.
Salary can create RRSP contribution room and CPP entitlement, while dividends avoid payroll deductions and CPP contributions. A combination of the two may also be appropriate.
The right approach depends on factors such as:
- Your personal cash needs
- Corporate profitability
- Other personal income
- RRSP contribution goals
- CPP considerations
- Whether you plan to retain funds in the corporation
We review the options based on your circumstances rather than applying the same approach to every contractor.
HST registration and filing
Consultants generally need to register for HST once they exceed the small-supplier threshold, although voluntary registration may make sense earlier in some cases.
We help with:
- HST registration
- Regular or annual return preparation
- Input tax credits
- Quick Method considerations
- Services supplied to Canadian and foreign clients
- Corrections to prior filings
The correct treatment depends on where the client is located, what services are provided, and the applicable place-of-supply rules.
Canadian and foreign clients
Consultants who work with clients outside Canada may not need to charge HST on certain services, while still being entitled to claim input tax credits on Canadian business expenses.
The invoicing and HST treatment should be reviewed carefully, particularly where clients, intermediaries, or contracting agencies are located in different countries.
We help ensure the treatment is consistent across the invoices, bookkeeping records, and HST returns.
When does incorporation make sense?
Incorporation is not automatically the best choice for every consultant.
It is often more useful where the business earns more than the owner needs to withdraw personally, allowing some income to remain in the corporation. It may also be required by a client or agency.
The potential benefits need to be weighed against the additional costs and obligations, including:
- Corporate tax returns
- Bookkeeping
- Payroll or dividend reporting
- HST filings
- Annual legal filings
- Separate banking and recordkeeping
We review the expected income, personal cash needs, and ongoing costs before recommending incorporation.
Expenses commonly claimed by consultants
Home-office expenses
A reasonable portion of eligible household costs may be deductible where part of the home is used for business.
The calculation may include items such as:
- Rent
- Utilities
- Internet
- Home insurance
- Property taxes
- Maintenance costs
The amount should be based on a reasonable allocation, usually considering both the space used and how frequently it is used for business.
Computer equipment and software
Laptops, monitors, phones, software subscriptions, cloud services, and other technology costs may be deductible or capitalized depending on the nature of the purchase.
We help classify these costs correctly and record them consistently.
Vehicle and travel expenses
Vehicle expenses require records showing the business kilometres driven compared with total kilometres.
Ordinary travel between home and a regular work location may be personal, while travel to temporary client sites or other business destinations may be treated differently.
The facts and documentation matter more than the description entered in the bookkeeping file.
Professional and subcontractor costs
Consultants may also incur expenses for professional insurance, legal fees, accounting, training, certifications, and subcontractors.
We review whether the cost belongs to the corporation and how it should be reported.
Personal services business (PSB) considerations
The CRA may treat an incorporated contractor as a personal services business where the working relationship more closely resembles employment rather than an independent business arrangement.
Relevant factors can include control over the work, ownership of tools, financial risk, the ability to hire assistance, and how integrated the contractor is into the client's organization.
This issue does not affect every contractor, but it should be considered where the corporation depends heavily on one client or the arrangement closely resembles employment.
We can review the facts and identify areas that may warrant further attention.
Shareholder transactions
Personal and corporate spending can easily become mixed when the owner controls the business bank account and credit card.
Withdrawals that are not recorded as salary, dividends, reimbursements, or repayments may create a shareholder loan balance. These balances can have personal tax consequences if they are not addressed properly.
We help keep personal and corporate activity separate and review shareholder balances before the year-end is finalized.
Bookkeeping support and cleanup
Many consultants do not need complex monthly bookkeeping, but the records still need to be complete and reliable.
We can help with:
- QuickBooks Online setup
- Bank and credit card reconciliations
- Transaction categorization
- HST coding
- Payroll entries
- Shareholder account cleanup
- Year-end adjustments
- Catch-up bookkeeping
Bookkeeping support is generally coordinated with the corporation's year-end and tax work.
Personal tax returns for business owners
The corporate and personal tax returns are closely connected.
Salary, dividends, shareholder transactions, and other corporate amounts need to be reported consistently on the owner's personal return. Preparing both returns together helps reduce mismatches and supports better compensation planning.
Personal tax services are available primarily for corporate clients and their immediate families.
SR&ED for consultants developing proprietary technology
Consultants who develop their own software, platforms, tools, or other proprietary technology may undertake work that qualifies for SR&ED.
The project must involve more than routine development. There should be a technological uncertainty, a systematic investigation, and an advancement in technical knowledge or capability.
It is also important to separate internal development from ordinary billable client work and to maintain records showing who performed the work and when.
Learn more about SR&ED for software companies →
How we work with consultants and contractors
1. Review the current setup
We look at the corporation, bookkeeping records, HST status, compensation, and outstanding filings.
2. Complete the required filings
We prepare the corporate year-end, T2 return, HST returns, slips, and related personal tax filings where applicable.
3. Identify practical planning issues
We review matters such as salary and dividends, instalments, shareholder balances, and whether the current structure still makes sense.
4. Keep the records organized
Where bookkeeping needs attention, we help clean up the file and establish a more reliable process for the next year.
Good records and timely planning make a contractor's year-end much easier. Keeping HST, compensation, expenses, and shareholder transactions organized throughout the year avoids most preventable problems.
