For a number of years, the Government of Quebec has been offering a small business deduction (SBD). This tax deduction, which takes the form of a favourable tax rate applicable on the first $500,000, is intended to encourage the growth of small business corporations. However, to qualify for the lowest rate, the company's employees must work at least 5,500 hours.
Questions often arise when it comes to these infamous 5,500 hours. Can the hours worked by a shareholder be counted? Should the hours worked by a shareholder be compensated?
These are the kinds of questions this article will attempt to answer.
Can a shareholder's work be counted towards 5,500 hours?
According to Revenu Québec, you can count up to 40 hours of work per week for a majority shareholder in order to reach the 5,500 mark and benefit from a reduced tax rate.
This means that if the shareholder does not take a vacation, they can count for a maximum of 2,080 hours of the total number of hours worked for the business in the year.
Do the hours worked by a shareholder have to be compensated to be counted?
The answer to this second question varies according to the shareholder's status.
Hours worked by a majority shareholder
For a person to be considered a majority shareholder, they must directly or indirectly hold more than half of the shares with full voting rights in the capital stock of a corporation. According to Revenu Québec, a corporation's majority shareholder can record his working hours even if he receives no salary from it or if he receives less than the value of his active interest in the business.
Of course, since some majority shareholders own the majority of shares in several companies, the hours counted for each of them must give a realistic total when added together.
Hours worked by a minority shareholder
In the event that a minority shareholder (who owns less than 50% of the shares of the corporation) participates in the activities of their corporation, their hours can also be counted to achieve the 5,500 hours required to benefit from the SBD.
However, unlike the hours worked by the majority shareholder, those of the minority shareholder must be compensated, unless they are subject to an exception provided for in the Act respecting labour standards. The wage paid for these hours must be at least equivalent to the minimum wage. In addition, the minority shareholder must be considered an employee of the corporation to benefit from this tax assistance program.
Ask T2Inc for advice on how to benefit from the SBD and maximum tax deductions
If you are the head of a corporation and want to qualify for the small business deduction, there are certain requirements you must meet if you want to count the hours worked by a shareholder.
Please note that if you want to benefit from the support of a tax accountant to benefit from all the tax deductions you are entitled to, you can trust the T2inc team.