Frequently Asked Questions

Source: Legal Council Mohawk Council of Kahnawake

General Questions:

1. Can an individual/private business garnish wages if a contract has been signed with the client agreeing to it?

2. When a business owner files their personal income tax, do they have to attach their business income tax to it?
3. What are the implications of incorporating federally and provincially?

4. What are the pros and cons of registering for a business number?

5. Who should register for a business number and what are the implications?

General Questions:

The following is a legal opinion, in question/answer format, which addresses various questions from the business community:

Question:

1. Can an individual/private business garnish wages if a contract has been signed with the client agreeing to it?

Answer:

There are several scenarios that must be examined in order to properly address this question, as each bears its own legal regime. However, in most situations, wages will not be susceptible of garnishment, as it is tantamount to a seizure of property.

Situation #1
According to s. 89 (Indian Act), the seizure of property on reserve is not possible by a "person" other than an "Indian" or a "band". This is a right that cannot be contracted away since it is probably a matter of "public order" (see: Mitchell v. Sandy Bay Indian Band, [1990] S.C.R. 85). Therefore, in order for garnishment to succeed on a reserve, the garnishee must be either a non-"Indian" or not a "band", otherwise they are protected by s. 89. Despite an entire "Indian" ownership, both corporations, and partnerships cannot by definition be considered "Indians", and nor can they be "bands", and are therefore beyond the protection of s. 89. A sole proprietorship owned by an Indian, on the other hand, is considered an Indian.

Situation #2
Assuming the garnishee and garnishor are both either an Indian or a band, (and are thus exempt from restrictions on garnishment/seizure), or in the alternative, that s. 89 does not apply, (in which case garnishment/seizure is according to applicable law) is the procedure for seizure by garnishment is governed by the Code of Civil Procedure, s. 625-650. A contractual agreement by a client permitting garnishment does not eliminate the required process of obtaining a judgment, which is the focus of this procedure; however, it will facilitate the burden of proof in that procedure.

Situation #3
In a third situation, let us assume [1] that the "client" is himself or herself an employee, and not a third party who entered into the contract, or did not enter into a contract with another other than his/her employee, and [2] that this contract does not violate rules of contract formation, or that consent was not vitiated, or that some other exception can be found to render the contract either void or invalid. In this scenario, the CCQ enables the contractual retention of monies. Retention, here, is different than garnishment, since no seizure is necessary. The employer is the one with whom the employee/client entered into a relationship, and the monies therefore need not be "seized" as they already are in the employer's possession. However, a right of retention can only be contractually granted if it is not waiving a public order right. Since in an employment contract, one's right to one's wages is a matter of public order, the monies being retained must be something other than employment wages, however unlikely that may be. In this case, the following CCQ provisions on retention would apply.
Art. 1592
A party who, with the consent of the other party, has detention of property belonging to the latter has a right to retain it pending full-payment of his claim against him, if the claim is exigible and is directly related to the property of which he has detention.

Art. 1593(1)
The right of retention may be set up against anyone.

Art. 553. The following are exempt from seizure:
(7) Benefits payable under a supplemental pension plan to which an employer contributes on behalf of his employees, other amounts declared unseizable by an Act governing such plans and contributions paid or to be paid into such plans
Furthermore, under laws pertaining to bankruptcy in Quebec, a certain portion of salaries and wages based on the number of dependants are exempt from seizure as well. Therefore, the amount must be taken into consideration in each given situation.

Question:

2. When a business owner files their personal income tax, do they have to attach their business income tax to it?

Answer:

If the business is a corporation, it is considered a separate legal entity, and is therefore not related to a person's personal income. If an owner becomes an "employee" or a "contractee" of the corporation, then the money earned is declared in one's personal income tax. Similarly, if any dividends, bonuses or stock options are issued to an "owner" from "their" corporation (shareholders are considered to be equity owners in the corporate context), then it considered part of one's taxable personal income.

If the business is not a corporation, then the business income becomes the personal income of the owner, subject to one's share of the ownership of the business, in the case of a partnership, or in its entirety, in the case of a sole proprietorship. There is a line/section on the personal income tax form designated for business income or independent contract income.

Question:

3. What are the implications of incorporating federally and provincially?

Answer:

Incorporation in General
A corporation is constituted under a statute (see: Canada Business Corporations Act. R.S., 1985, c. C-44, and the Companies Act R.S.Q. C-38) and exists as a distinct legal entity from its shareholder or shareholders. Because it is a distinct legal entity, and is not susceptible of being an "Indian" according to the Indian Act, certain benefits may actually be lost through incorporation.

The goal of a corporation is to operate a business for profit and to distribute the profits among the shareholders.

The following are some of the characteristics of a corporation:

A corporation exists on an ongoing basis, until such time as it is wound up.
A corporation can be set up under the authority of either a federal or a provincial statute. If you intend to operate your business solely in Qu�bec, it might be advisable to incorporate under a provincial statute. However, the corporate name of a federally incorporated entity is protected throughout Canada.
A corporation has exclusive ownership of all property (whether money or personal property) transferred to it by its shareholders in exchange for shares of the corporation.
A shareholder's liability for the corporation's debts is limited to his or her investment, unless the shareholder provided personal guarantees for a loan to be invested in the corporation's business.

Liability of directors
If the corporation fails to remit an amount payable to the Minist�re, the corporation and the directors serving at the time of the omission are jointly liable for the amount in question, as well as any penalties and interest.
However, directors are not liable if they acted with reasonable care, dispatch and skill under the circumstances, or if it was impossible for them to be aware of the omission.
(Source: http://www.revenu.gouv.qc.ca/eng/entreprise/demarrage/types/societe.asp)

Advantages and Disadvantages of Federal and Provincial Incorporation
The next decision is whether to incorporate your company federally or provincially. If you incorporate federally (a "Corporation"), your business will be empowered to conduct business throughout Canada. Although your "corporation" will still be subject to provincial regulations, and will have to pay a license or registration fee in some provinces, no province will be able to prevent your company from conducting business under its corporate name. A provincially incorporated company, (a "Company") on the other hand, may not be able to operate under the same name in another province, if another corporation with a similar name already exists in that province.
One disadvantage of federally incorporating your company is the required disclosure of financial records. A private corporation's financial statements must be made public if a federal corporation has gross revenues for a fiscal period in excess of $10 million, or has total assets in excess of $5 million as of the last day of any fiscal period. These gross revenues and total asset figures include those of affiliated companies and the parent company (Canadian Business Guide).
Also, to federally incorporate, the composition of your company's board of directors must meet the requirements of the Canada Business Corporation Act. Under this Act, a majority of the directors of a federally incorporated company must be resident Canadians, unless "a holding corporation earns in Canada directly or through its subsidiaries less than five per cent of the gross revenues of the holding corporation and all of its subsidiary bodies corporate together, then not more than one-third of the directors of the holding corporation need be resident Canadians" ("...Incorporation Kit, Industry Canada).
Finally, corporations provide more security for minority shareholders than do companies. So when a client is in a minority shareholding position, we suggest incorporating at the federal level.
Industry Canada's Small Business Guide to Federal Incorporation provides detailed information on how to federally incorporate your company. Federal incorporation costs $500.
If you incorporate your company provincially, you'll have to register and license your company through the appropriate provincial Registrar in each province and territory you wish to do business in, outside of the original incorporation jurisdiction. So if you incorporate your business in Ontario, and then want to operate in New Brunswick as well, you'll have to register your business with the New Brunswick Registrar as well, and pay the appropriate additional fees. Incorporation fees vary from province to province, but generally, provincial incorporation costs about half as much as federal incorporation.

Question:

4. What are the pros and cons of registering for a business number?

Answer:

Registering for a number will facilitate trade with suppliers who, for tax reasons, require that they provide a business number of their clients. Also, having a number will permit one to gain tax credits for off-reserve business, where tax credits would otherwise be lost. But these are only general advantages.

Since there are only a few scenarios in which one has a choice whether to register or not, this becomes a question of which form of business organization one wishes to pursue. Please refer to the answer to question number five (5).

Question:

5. Who should register for a business number and what are the implications?

Answer:

Whether you are required to register your business depends on its legal structure. A registered business is automatically included in the business register maintained by the Inspector General of Financial Institutions (IGFI) making its existence a matter of public record.

To register your business, complete the declaration of registration corresponding to its legal structure.

Sole proprietorships and partnerships
If you are starting a sole proprietorship under your own first name and last name, you are not required to register (although you may do so if you wish).

Example

The Henry Jenkins Travel Agency would not be required to register; however, a business called Laura's Pet Care would be required to register, since its name does not include the owner's last name.

If you are starting a joint venture, you are not required to register (although you may do so if you wish).

In most other cases, you must register your business. To do so, file the declaration of registration, along with the applicable fee, at an office of the IGFI in Montr�al or Qu�bec City, within 60 days following the date on which you begin your business activities. You may also file your declaration with the Minist�re du Revenu or the Clerk of the Superior Court.

Corporations

If you plan to incorporate your business under the Companies Act (in Qu�bec), you may apply to the IGFI (but not to the Minist�re du Revenu) to have your corporate name reserved for you for a period of 90 days. You must then complete the required forms and file them along with your articles of incorporation.

If your business is incorporated under the Canada Business Corporations Act, or if it is a foreign company that operates in Qu�bec or has its head office there, you must complete a declaration of registration and file it with the IGFI within 60 days following the date on which your business begins operating in Qu�bec.

(Source:http://www.revenu.gouv.qc.ca/eng/entreprise/demarrage/demarches/immatricul.asp)