Income Calculation

A corporation that has an establishment in Québec or that sells certain property in Québec is subject to income tax. The income earned by the corporation belongs to the corporation; shareholders cannot allocate the corporation's income to themselves. The corporation's losses are not deductible from the income of individual shareholders, but may influence the value of their shares.

Consequently, a person who works for a business, as an employee (This link will open a new window), cannot set up a corporation in order to report his or her income as corporate income.

In calculating the corporation's income, the main items you should take into account are

• business income and losses
• property income and losses
• capital gains and losses

You must report the corporation's sales, as well as any fees received or receivable for services rendered by the corporation.

As a rule, the corporation's income must be calculated according to the accrual basis of accounting, unless the corporation is a farming corporation or a fishing corporation.