Have you been asked to provide a NAICS code for your business? Are you wondering why that is? Or are you concerned that it might have an unintended impact on your business?
If you answered yes to any of these questions, then keep reading. We have compiled some information about the NAICS and answered some common questions about NAICS codes.
What is NAICS all about? And why am I being asked to provide the NAICS code for my business?
NAICS stands for North American Industry Classification System.
The NAICS is primarily in place for statistical purposes. It was established to standardize the intake and analysis of business and economic data in Canada, the United States, and Mexico.
Even though the NAICS system was established for statistical purposes, the categorization of businesses by NAICS codes now has more implications than just statistical record keeping.
What does a NAICS code look like?
Every NAICS category is associated with a number, a name, and a description. The main category number for each NAICS category is a two-digit number. You can see the main categories here.
Within each category, there are subcategories. And each subcategory can have further sub-sub categories! At each category level, an additional digit is added to the code in order to identify that grouping. In addition to the code, there is also a name and a description of the business activity at each level.
For example, there is a category 41 for “Wholesale Trade”, with a sub-category 416 for “Building material and supplies merchant wholesalers”, a sub-sub category 4161 for “Electrical, plumbing, heating and air-conditioning equipment and supplies merchant wholesalers”, and a sub-sub-sub category that is identified as follows:
code: 41611
name: Electrical wiring and construction supplies merchant wholesalers
description: See full description here.
When providing a NAICS code for your business, you usually only need to provide the main category (the two-digit code); however, in some instances, you need to provide a more granular code.
Why do I need to provide a NAICS code when I do a NUANS name search?
The NUANS name system provides the option of inputting a NAICS code at the time that a name search is conducted. It is not mandatory, but it provides better search results.
When inputting a NAICS code for the NUANS search, you only need to put in the highest level (i.e. the two number digits associated with the main categories).
This is what NUANS says about the use of NAICS codes:
“North American Industry Classification System (NAICS) codes can be entered to bias business names searches towards names that already exist in the same business sectors.”
“Selecting a NAICS code will cause results associated with the business sector to rank higher in the report. It does not limit the search to the specified sector, and relevant results will not be negatively impacted.”
NUANSSo, in short, it provides you with a more helpful NUANS search report!
Why do I need to provide the NAICS code when making a filing for my Ontario corporation?
In 2021, the Ontario government implemented a new Ontario business registry system. The new system requires the collection of NAICS codes upon the occurrence of several events. For example, a NAICS code needs to be provided at the time of incorporation. Or if you are making a change to your corporation, such as changing its address or changing directors and officers, then you also need to provide the NAICS code at that time.
Here is what the Ontario Business Registry has said about its use of NAICS codes:
“You must select the code that best describes the main activity of the corporation or other entity. For example, a code for a hair salon could be “812116 – unisex hair stylist shops”. This information is collected for administrative purposes for corporations and may be shared with other government bodies for the purpose of administering their programs under the authority of the Business Regulation Reform Act, 1994; it does not appear on the public record. However, the NAICS code is also required under the Business Names Act and Limited Partnerships Act, in which case the NAICS code does appear on the public record.”
Ontario Business RegistryWill my NAICS code restrict the type of business that I can carry on with my corporation?
No, as far as we understand, the NAICS code you select for your business will not restrict the type of business your corporation can engage in.
In some other countries, it is common for corporations only to be allowed to carry on the types of business they said they would carry on at the time they first incorporated. However, that is not true in Canada, and the NAICS code does not restrict you from changing the type of business you engage in with your corporation.
Will the NAICS code affect the way that my business is taxed?
Taxation authorities, like the Canada Revenue Agency (CRA), use the NAICS system to categorize businesses. CRA also uses the codes to establish norms for revenues, expenses, etc., so that they can compare your company’s tax filings with those of your peers. It is important that CRA correctly categorizes your business within its system so that it is correctly benchmarked against peers.
At present, we are not aware of any transmission of the NAICS code from corporate registries to the CRA. We assume that the CRA makes a determination of how to tax a business based on that business’s income tax filings and other related tax reporting and filings (if you are reading this article and have any information to the contrary, please let us know).
Will the NAICS code affect the government programs that I am available for?
For Ontario corporations, the NAICS code you select may affect your company’s eligibility for certain government programs. Ontario’s Business Registry has said that NAICS codes “may be shared with other government bodies for the purpose of administering their programs”. It is not yet clear whether they actually do this, how they do it, or what the implications of this will be. However, it is a reminder that you should attempt to choose a NAICS code that best fits your business (even though it’s tough to find a perfect match).
None of the NAICS codes match my business. What should I do?
This is a very common situation. The NAICS categories are very blunt tools. It is rare for a company to find a NAICS category that matches their business perfectly. You need to find a NAICS code that fits best. It will rarely be perfect.
One approach that could help you find a category that fits your business is to check out the full description of each category. You can find the full description of each category on the government of Canada’s site for the NAICS. If you do a control+find search once you are on that page, you might find some keywords that match your business, and then you can select the category from there. You can also use a search bar at the top of the site.
For example, when it comes to holding companies, there is no NAICS code that is specifically called “holding companies”. However, the description for category 55, which is for the “management of companies and enterprises”, speaks about “establishments primarily engaged in managing companies and enterprises and/or holding the securities or financial assets of companies and enterprises”… So, even though it doesn’t say so in plain language, this category is what we use for holding companies.
As another example, there is no category specifically for import and export. You need to get more detailed than that. Category 41—called “wholesale trade”—is a popular catch-all category and would probably cover businesses that import goods into Canada and then sell them on a wholesale basis.
What are the NAICS options? How do I find them?
You can see the main categories here. You can also find more detailed definitions for each category on the government of Canada’s website for the NAICS.
When using the Tobuso platform, it is very easy to select your NAICS code because there is a built-in list with all of the codes. You can easily select the code that best fits from that list. Once your code is inputted into the Tobuso platform, it will be included in all required government filings generated through the Tobuso platform. You can also easily change your NAICS code on the platform.
