Friday, July 3, 2009

Canada's Economic Recovery Expected to be Modest, More Job Losses to Come: Flaherty

Canadian Corporate Tax Rates Slide to 25% Floor

Canadian Finance Minister Jim Flaherty says unemployment will rise through 2010 despite some growth in the economy after meeting with the finance ministers of other nations.
Even though the economy is in the process of stabilizing, he and his fellow colleagues expect a continued increase in unemployment, as the labour markets have not improved and they are concerned about the effect on workers.

"We'll start to see stabilization, which we are seeing now, and then a return to economic growth but continuing deterioration in employment," he said.

"We can expect that to happen into 2010, but we're optimistic we will then see the unemployment numbers start to improve."

U.S. payrolls fell in June by 467,000, far more than was expected. Growth was predicted to resume by the fourth quarter but now some think that it may not happen so quickly.

Canadian economists expect Statistics Canada to report another 30,000 jobs to have been lost in June 363,000 jobs have been lost in Canada since October 2008.

Flaherty has in the past warned Canadians that times may continue to be tough however he is also confident that our recovery would be swift and strong, leading most of the industrialized countries.

Recently he has been more conservative in his estimates though, concurring with other finance ministers that recovery will be slow.

"The anticipation is that the recovery will be modest, so that we'll experience some continuing increase in unemployment, but as we move into 2010, we'll start to see modest recovery," he said.

In the January budget, Flaherty predicted a strong rebound from the recession, with GDP growth of 4.3 per cent in 2010, 6.4 per cent in 2011 and 6.1 per cent in 2012, all higher than the private sector's average estimates.

Notably, the finance minister said he believed Canada's low corporate tax regime in comparison to other nations will attract corporations here.

Tim Hortons Inc. (TSX:THI) announced this week that it would relocate its corporate registration back to Canada from the U.S. in order to take advantage of lower taxes. Flaherty thinks other companies will follow suit as Canada's corporate tax rates decrease to the new 25 per cent floor in combined federal and provincial taxes.

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Why Should I Incorporate My Business in Canada? – Part II: The Advantages

So you are thinking about incorporating. Here are some more advantages as well as potential pitfalls of incorporating:

Limited Liability

As we said in the previous post, a corporation is a separate legal entity from its owners, and the main advantage of that is that the owners, or shareholders are for the most part not liable for the corporations debts and obligations. They can only lose the amount they invested in the corporation. The creditors can only have claims against the corporation itself and not the shareholders.

Perpetual Existence

Being a separate legal entity, a corporation does not cease to exist if the shareholders, directors, officers or members die or retire. The ownership of the corporation and it shares can therefore be easily transferred. The corporation itself may also own property, enter into contracts and sue or be sued, independent of any individual involved.

More Potential Sources of Capital, More Attractive to Investors

Corporations can issue different classes of shares as well as different debt instruments, such as bonds, in order to raise capital. Sole proprietorships and partnerships cannot do so as easily. This makes it easier for corporations to attract investors as opposed to the other business forms.

Tax Benefits

Among other tax benefits, incorporating would cause your business to pay income tax at a lower rate than as a sole proprietorship or partnership. It would also be possible to carry forth losses of previous years that offset the profits of subsequent years.

Credibility and Prestige

Incorporating can very well lend greater credibility and prestige to your business dealings that you would not have otherwise. You might be seen as a more established company as opposed to before you incorporated.

Now that we have discussed some of the advantages, here are some formalities you should be aware that you would be subjected to upon incorporating:

Higher Start-up Costs

The cost to incorporate, including government fees, may be higher than those to initiate a sole proprietorship or partnership.

Maintaining Records

In order to provide shareholders with information, a corporation must keep meticulous records, as well as hold meetings and elect directors.

Double Taxation

This may seem like a disadvantage, however it can be minimized. The corporation pays taxes on its income and the shareholders pay taxes on their dividends (profits). But the corporation's business expenses, such as salaries, can be offset by its income.

Incorporate in Canada with
Click. You're incorporated ®