How can you tell whether a Shopify store is directly owned by a person or his company?
Since the shopify store name is not a legal business name, Shopify does not create invoices for its customers; instead, it only sends email confirmations addressed from the shopify store name (domain) to the client’s name.
So, it is difficult to determine whether the seller is a company or an individual based on the email confirmation.
My customer didn’t even update his personal name or the name of his corporation in the “Legal business name” box (under settings), as you may know, adding a legal name for a business is not required according to Shopify rules. the business address on shopify is his house address which is also the corporation address
Even Shopify invoices for fees paid by the store owner are sent to the store name (domain name), which can be attributed to the person or to the corporation if the corporation is owned by the same person
Facts:
A new young online seller made $150K in net income in his first year (2022) doing dropshipping on Shopify, he received all his store revenue payments into his personal bank account and he paid all his business expenses using personal credit card.
on the other hand, he has inactive corproation that he incorporated back in 2019, never filed a T2, and never opened a corporate bank account until 2023.
He is asking if he can report his 2022 shopify income under his croporate tax return and record the payments received to his personal account as shareholder loan on the balance sheet that he will pay back to the company after he opens the corp bank account (in 2023).
In my opinion Shopify business was a soleproperitorship and should be reported on his 2022 T1, especially that he received the income into his personal account, what do you think?
Absent any indication to the contrary (and there appear to be none)…proprietorship.
What would I look for?
any indication that the corp itelf was “active” in any way
any indication that Shopify is even aware of the corp (I have a client who uses Shopify and they definitely correspond with the corportation - or can be “made to do so”)
Otherwise it looks like hindsight tax planning.
If he wants to run that way, fine…but the corp should have an agency agreement with him and the personal bank account has to go.
I have had 2 or 3 corporate clients that didn’t have a corporate bank account - all “bank” transactions posted to shareholder loan. In one case they had done the corporate bookkeeping themselves (in Excel). In another case, my firm was hired to do the ongoing bookkeeping (which we did in Sage 50). CRA has not questioned any of the tax filings. As long as everything is properly accounted for, and documented, from the start of operations, it should be fine. But, in each case the CLIENT told ME it was a corporation, not the other way around.
I agree with @SmallBizGuy - based on the facts, your client would have to report it as personal income until the corporation is active and starts maintaining proper corporate records. I would tell the client it is their decision how to organize their business, but they must ensure proper bookkeeping is done, and legal requirements met (i.e. activating the corporation, keeping a minute book, etc).
Yes I asked him, he incorporated him self online in 2019, and since then, the corporation is inactive, all he has is article/certificate of incorporation dated 2019, no complete minutes book, no clear shares issuance split with his other partner, no agency agreement as SmalBizGuy suggested above, I told to use the service of Ownr to prepare and back date all important initial minutes
Good referral to Ownr. For situations where legal advice is not required, that can be a great choice. It’s such a difference maker to have consistent, properly prepared minutes, corporate annual filings and all related corporate secretarial done correctly.