Small Business Services
1. Can an individual/private business garnish wages if a contract has been signed with the client agreeing to it?
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.
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,  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.
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.
In a third situation, let us assume  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  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.
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.
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.
2. When a business owner files their personal income tax, do they have to attach their business income tax to it?
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.
6. What type of legal action can a Kahnawà:ke business take in regards to collecting outstanding accounts from Kahnawà:ke clients and non-registered businesses?
In order to fully answer this question we must distinguish between the right to take legal action and the right to execute on a judgement resulting from the said legal action. Whether the creditor is a corporation/company, a partnership or a sole proprietorship, it has a right to sue a debtor who is in default of fulfilling its obligations under contract, regardless of whether the debtor is native or non-native. The difficulty comes in executing a judgement when the creditor is a non-native, such as a corporation/company or a partnership, and the debtor is a native.
Section 89 of the Indian Act protects natives from any type of seizure of their property situated on reserve at the instance of a non-native creditor. As such, even if a non-native can sue a native for breach of contract, they cannot execute the judgement if the only property owned by the native is situated on reserve.
With this distinction in mind, a corporation/company, or partnership which during a twelve month period immediately before the taking of an action had no more than five employees may sue its debtor in small claims court if the value of the action is no more than $7,000.00. If the value of the action is between $7,000.00 and $70,000.00 the creditor, regardless of its status, can sue in the Court of Quebec. If the value of the action exceeds $70,000.00 then in all cases the action is taken before the Superior Court of Quebec. Kahnawà:ke is situated in the judicial district of Longueuil, generally if the contract is signed in Kahnawà:ke the action resulting from breach of contract should be taken in that district.
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 Québec, 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 Ministère, 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.
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.
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 5.
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). For 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 Montréal or Québec City, within 60 days following the date on which you begin your business activities. You may also file your declaration with the Ministère du Revenu or the Clerk of the Superior Court.
If you plan to incorporate your business under the Companies Act (in Québec), you may apply to the IGFI (but not to the Ministère 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 Québec 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 Québec.
7. What tax exemptions in the goods and services markets, outside of the normal “native status” exemptions, are applicable to me as a sole proprietor?
According to Technical Information Bulletin (August 2006) B-039R3: Businesses owned by Indians, Indian bands or band-empowered entities whose annual taxable sales of property and services are more than $30,000 are required to register for the GST/HST. Like other businesses, once registered, they must collect and remit the tax on their sales of property and services (unless the sales are made to Indians, Indian bands or band-empowered entities under conditions where the GST/HST is not payable). They may also claim input tax credits for the GST/HST paid on purchases made in the course of their commercial activities.
Businesses, whether owned by Indians or non-Indians, selling property or services to Indians must include their taxable sales to Indians, even if no GST/HST was charged, in their calculation of annual revenue to determine if they must register for the GST/HST. Sales of taxable property and services that are relieved from tax when supplied to Indians, Indian bands or band-empowered entities under the circumstances described in this bulletin are still considered to be taxable sales for determining registration requirements.
Sole proprietorships and partnerships owned by individual Indians receive the same treatment on purchases as individual Indians. If they are registered for the GST/HST, they, like all other businesses, must collect the GST/HST on their sales of taxable property and services (unless they are made to Indians, Indian bands or band-empowered entities under the conditions in which the GST/HST is not payable) and they can recover any GST/HST paid on their eligible off-reserve business purchases by claiming input tax credits.
So apart from “native status” exemptions a “native” business will be treated like any other business for the purpose of goods and services taxes.
8. As a sole proprietor, is it possible to form a partnership with a non-native corporation? If yes, how does this affect my tax responsibilities for a contract to be fulfilled within the territory or outside the territory?
Yes, it is possible for a sole proprietor to form a partnership (for the purpose of this answer we assume it will be a general partnership as opposed to a limited partnership) with a corporation (a corporation is neither native nor non-native). If you are a member of a partnership, your partnership income will be taxed in the same way as any other business income. For the purposes of section 87 of the Indian Act (this is the general tax exemption for status Indians), the key factor will be the location of the partnership’s income-earning activities. Under the Income Tax Act, partnership income is first calculated as if the partnership were a separate person. Your share of the partnership income from each source will be allocated to you, and will retain its characteristics as to source and nature. If all the partnership’s income-earning activities are carried out on a reserve, all your income from the partnership will be exempt from tax. If one-half of the partnership’s income-earning activities are carried out on a reserve, one-half of your share of the partnership income will be exempt.
9. Is it mandatory to register with the CSST for businesses who expand goods and services sales off reserve?
According to the CSST, this form of insurance is mandatory for all employers. All businesses having an establishment in Quebec and who employ at least one worker, whether full-time or part-time, are required to register with the CSST as an employer.
10. What are the personal income tax implications of doing business off reserve if I am a status Indian living on reserve and my registered company (with a Quebec enterprise number and business number) is located on reserve?
Section 87 of the Indian Act does not apply to corporations or companies, even if they are owned or controlled by a status Indian. A corporation or company is treated as a separate taxpayer. As such, neither a coproration or company would be considered an “Indian” for purposes of the exemption. Therefore, any business income earned by the company, whether on or off reserve, will be taxable at the company’s corporate tax-rate.
11. What are the tax implications of registering (with a Quebec enterprise number and business number) my sole proprietorship?
If you register your sole proprietorship with Quebec, Quebec may not know that the business is being operated by a status Indian and consequently that the business may be entitled to certain tax exemptions. As such, Quebec will treat the sole proprietorship as any other business in Quebec and may assess the business for certain taxes, fees, contributions and levees for which the sole proprietorship may be exempt. In this case it will be up to the sole proprietorship to prove it is entitled to the particular exemption claimed.
12. As a contractor in the construction industry, what are the tax implications of becoming registered with the Régie du Bâtiment du Québec (RBQ). Do I have to grant RBQ access to my bank statements?
The tax implications of a contractor in the construction industry does not depend on whether or not he is registered with the RBQ, but rather depends on the type of business organization he operates, where he operates, and where his clients are located and how all these factors are related to the reserve. If you are, however, registered with the RBQ, the Board may in the exercise of their powers of supervision examine and make copies of a contractor’s books, ledgers and files the whole in accordance with article 112(2) of the Building Act R.S.Q. c., B-1.1.
13. As an employer and regardless of where my contracts are performed, am I liable for contributions to the Commission des norms de travail (CNT), Health Services Fund (FSS). and Training Program (FDRCMO)?
This question cannot be fully answered in this format. For each “levy” we must first determine if the amount claimed by the Government is a “tax.” If the “levy” were in fact a tax then we would have to determine if the employer could claim an exemption under the Indian Act. This would depend on the business structure used to carry on the business activity. Thereafter we would in some cases have to consider whether the business activity is sufficiently connected to the reserve into order to benefit from an exemption. Therefore the question is too broad in scope to properly answer in this format.
14. If I fail to pay any assessment made against my sole proprietor company, am I personally liable for payment? If so, can my bank accounts be seized or frozen? What else can they do to collect?
If you are operating a sole proprietorship business you will be personally liable for all debts of the business. If you are a status Indian section 89 of the Indian Act will protect your property situated on reserve from seizure. However, any property that you own situated off-reserve is subject to seizure for the debts of your business. What is generally done in the case of a tax liability is that Quebec or Canada will withhold tax credits or government payments that you may be entitled to in compensation of your tax liability.
Source: Hamilton, Cooper, Ashkenazy
In general terms, provincial labour and employment law (such as the Québec Labour Standards Act) will apply to Indians on a reserve.
Section 88 of the Indian Act states: “General provincial laws applicable to Indians – Subject to the terms of any treaty and any other Act of Parliament, all laws of general application from time to time in force in any province are applicable to and in respect of Indians in the province, except to the extent that those laws are inconsistent with this Act or the First Nations Fiscal and Statistical Management Act, or with any order, rule, regulation or law of a band made under those Acts, and except to the extent that those provincial laws make provision for any matter for which provision is made by or under those Acts.”
In the case of Four B. Manufacturing Limited vs. United Garment Workers of America (1980), R.C.S. 1031 the Supreme Court of Canada established the following rules: “With respect to labour relations, exclusive provincial legislative competence is the rule, exclusive federal competence is the exception. The exception comprises, in the main, labour relations in undertakings, services and businesses which can be characterized as federal….Neither the ownership of the business by Indian shareholders, nor the employment of a majority of Indian employees, nor the carrying on of that business on the (Indian reserve, nor the federal loan and subsidies, taken separately or together, can have any effect on the operational nature of that business.
However, in most respects the Band Council is considered to be subject to federal law and its employees will therefore be governed by the Canada Labour Code and other applicable federal legislation. If there is no applicable federal legislation then Band Council employees may, in certain circumstances, be governed by provincial law.
Therefore, in most cases, the operation of a business on a reserve is subject to the labour/employment law of the province of Quebec. Any private business starting up in Kahnawake will, in most cases, have to comply with provincial labour law.
Source: MNP SENCRL srl/LLP
16. What are the implications in Kahnawà:ke of being a registered employer with registered employees?
A registered employer operating in Kahnawà:ke must deduct at source for all non native employees for Federal and Quebec income taxes as well as wage levies, ie QPP, QPIP and EI.
For native employees, the registered employer must deduct at source for the employee share of wage levies, where applicable.
The employer portion of the wage levies is noted in the table below. In addition to the wage levies, the employer is also subject to other payroll based charges as follows:
- Quebec Health Plan
- Commission des Normes de Travail (CNT)
- 1% Training tax
The criteria and rates are noted in the table below.
Quebec Pension Plan (QPP): The salary of a status Indian is not subject to QPP contributions if:
- The income gives entitlement to the deduction for employment income situated on a reserve; and
- The employer did not make the irrevocable election to have the Act respecting the Québec Pension Plan apply to this employment.
Employer Payroll Summary Information – 2013 Year
|Payroll levies||% of Salary||Notes|
|Quebec Training tax||1%||When employer salaries exceed $1 million|
|Employment insurance (EI)||2.128%||Maximum annual insurable salary $47,400 for each employee|
|Maximum annual employer contribution $1,008.67 for each employee|
|Quebec Pension Plan (QPP)||5.1%||Maximum annual salary $51,100 and annual basic exemption $3,500 for each employee|
|Maximum annual employer contribution $2,427.60 for each employee|
|(see comments above re eligibility)|
|% of Salary||Notes|
|Quebec Parental Insurance Plan (QPIP)||0.782%||Maximum annual salary $67,500 for each employee|
|Maximum annual employer contribution $527.85 for each employee|
|Commission des Normes du Travail (CNT)||0.08%||Maximum annual salary $67,500 for each employee|
|Maximum annual employer contribution $54 for each employee|
|Health Services Fund (HSF)||2.7%||of total wages up to $1 Million|
|CSST||varying rates||Per government annual assessment (if applicable)|