The basics of starting your own business

Photo by Charles Deluvio on Unsplash

With job insecurity on many of our minds during the COVID-19 pandemic—and an estimated 44% of Canadians already dealing with job layoffs or reduced income as of late March 2020, according to  the polling firm Angus Reid—you might be thinking about starting your own business or side hustle as a way to earn extra money. Before you hang up a virtual shingle, though, take some time to understand your options (should you incorporate your business?), how to set up your business (will you need to collect HST?) and the tax implications of being self-employed, even if it’s only part-time. Here’s what you need to know.

The case for not incorporating

One of the biggest mistakes people make when becoming self-employed is jumping to incorporate their business. In many cases it isn’t necessary or beneficial. There are also additional expenses that can take a bite of a small business’s slim profits; corporations can cost $1,500 or more to set up with a lawyer and annual bookkeeping and corporate tax returns can cost $1,500 or possibly much more with an accountant.

Incorporating does make sense in some circumstances. As a Certified Financial Advisor by profession, I have a corporation; but I also have employees, an office lease and professional liability. If you have partners, if you expect to be able to leave savings in your corporation, or if you expect to sell your business, those may be reasons to incorporate.

As well, the tax benefits of incorporation can be attractive. Savings you leave in a corporation can be taxed at as little as 9% to 14%, depending on your province of residence and other factors. This is significantly less than personal income tax rates. If you sell qualified small business corporation shares, you may be eligible for a lifetime capital gains exemption of up to $883,384 in 2020.

That said, a business can begin as a sole proprietorship, or a partnership between two or more people, and subsequently be converted into a corporation on a tax-deferred basis. In other words, not incorporating now doesn’t mean you’re locked into that decision forever.

Registering your business name

If you are going to use a business name other than your own legal name, you may need to register the name to ensure it is not already in use. Ontario, as an example, charges $60 for an online search and registration that lasts for 5 years. British Columbia charges $30 and also offers online registration. Every province has their own process and procedures, so check with yours online.

Do you need to collect GST, HST or QST?

Canada Revenue Agency (CRA) is another good source. This link provides information as well as access to Business Registration Online, which can be used to register to charge and collect GST/HST, to withhold and remit payroll tax for employees (you are not considered an employee), as well as other potentially pertinent programs.

Before registering, it is important to understand the way GST/HST works. You may not need to register at all if your revenues will not exceed $30,000 per year (technically over four consecutive calendar quarters). That said, you may choose to register to give the appearance of a larger, more established business.

Source link

Comments (No)

Leave a Reply