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Everything I wish I knew running a sole proprietorship business

Hey you!

Yeah you!

I’m talking to you!

Don’t email me with your questions.

Please!

Read below

Update: This post is extremely popular and the comments are a wealth of information – make sure to read them. Please remember that these are just my experiences – I’m not a tax lawyer and and I cannot consult on your situation – so please do not call or email me with your questions. You should talk to an accountant, a book keeper or a tax lawyer. Or just call the CRA, they are pretty nice and have the answers your questions. Again, please don’t email me!

The new year marks the beginning of a new fiscal year for many businesses so I thought I would share a few things I have picked up over the past few years. I’ve run my web consulting business as a proprietorship the past three years and have picked up quite a few nuggets of useful information along the way. These things seem simple and almost laughable now, but as a greenhorn I wish I had known these before I started.

These tips are best if you are thinking about running a sole proprietorship (a business that is owned and run by a single person) in Canada but are helpful for other outside of the country.

Hire a good Accountant

I’m putting this one first because its by far the most important thing you should do when starting a business. My first year I paid someone $50 to do my taxes and I really got what I paid for. I had my taxes reassessed three times and had to pay the government more each time. The second year around I paid around $700 for the fantastic services of Waterford Tax & Advisory who did an amazing job straightening everything out and giving me some fantastic advice which saved me tons in the long run. A good accountant will always be around to answer questions and give you advice. You can’t afford to use a cheap accountant, trust me.

Ditch excel, use Freshbooks

This is a no-brainer for taking care of estimates, expenses and invoicing clients. At $33 a month, this is one of the more expensive services I subscribe to, but it is worth every penny. At the end of the year I’m able to export a few reports and send them off to my accountant – no dealing with spreadsheets. My clients love Freshbooks too – I often get compliments on both how easy it is to manage invoices and how professional my invoices look like.

Understand taxes – Personal and HST

Starting a business, you are probably coming from  a job where all your taxes are taken care of and at the end of the year, you get a nice little return from the government. Not so when you are on your own, take the time to educate yourself on what sort of taxes you need to pay in your area.

Personal Income Taxes: Running a sole proprietorship in Canada means you get taxed at the same rates as everyone else who isn’t self-employed. There are both provincial and federal tax rates that vary depending on how much income you bring in. You can run your numbers for both at the CRA website.

HST: I run my business in Ontario, and I need to charge all my clients who live in Ontario 13% HST – your province or state will have something similar setup. If you are making more than $30,000 a year  you will need to register for a HST number and start collecting.

So, the biggest lesson learned here is you need to pay a ton of taxes. As soon as you get a cheque, you should cut out anywhere from 35-50% (13% HST, 22-37% income tax)  – depending on how high your taxable income is – and placing it in another account to pay the tax man at the end of the year.

Keep every receipt and expense everything

The best thing you can do to reduce how hard you get hit by taxes is to expense every single dollar you pay to run your business. Again, this may seem like easy stuff to some, but its worth noting how this stuff works.

You only get taxed on net income, not gross income. So, if you get paid $1,000 for a project, but spent $200 on hosting for it, you will only be taxed on $800.

So, think of every little thing you use to run your business. Buying a new laptop, conference tickets + flights, printer ink, online subscriptions, software licenses… It all adds up quickly and can really help you reduce your taxable income.

As a business, you also don’t have to pay HST. So any receipt you have that includes 13% HST, you will get that back from the government when you pay your taxes.

Max out your RRSP

This is a good tip for anyone around tax time. Up until the end of February, you can contribute to the previous years RRSP. Anything you contribute to your RRSP is not taxed, so you can treat it as a huge expense. The amount you con contribute depends on your previous years income, but it could be as much as around $20,000. In Canada, this money is meant to only be taken out at retirement, but there is a special clause that lets you cash it out, without penalty, when you buy your first house.

Health Insurance is cheap

My wife recently quit her job to work independently beside me. While we are super happy with that decision, we lost the perk of health benefits. In Canada residents are covered for the big stuff like surgeries and doctors appointments, but not things like medicine, dental work and eyeglasses. Insurance plans are surprisingly affordable, starting at $60 for basic coverage. Kait and I went for pretty good dental, eye and prescription coverage and it was around $160/month.

One other thing, we shopped around on the net for insurance and we didn’t find any good rates, only after getting in touch with a broker did we find out its much cheaper to have a human do it for you.

Incorporate to save $$

Coming full circle to having a good accountant, mine suggested that once you start earning decent income or are working in an arrangement like Kait and I are, it would make sense to ditch the sole proprietorship and incorporate as a business. Its more expensive to incorporate a business (~$500 vs $60) and its a more work to get up and running, but its well worth the tax savings in long run. I’m only beginning to explore this world but I’ll be sure to follow up with a post after a few months.

That’s it

TL;DR : Hire a good accountant and explore every possible way that you can reduce your taxable income. Starting to run your own business can be confusing so hopefully these tips can help you.

Update: Check this comment for a lot more useful tips, thanks Martin

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337 Responses to Everything I wish I knew running a sole proprietorship business

  1. pren says:

    Any advice for sole prop. Vs Corp. In Canada for doing work for clients in the states?

    • wesbos says:

      I have quite a few clients in the states and at the end of the day it doesn’t matter. Billing American clients is easy as you don’t need to charge the 13% HST. Just remember that you still have to claim and pay full income taxes on american income. Your client may make you sign a W8BEN which just shows the IRA that you aren’t an american citizen.

      As always, check with someone who does this for a living, I just build the web 🙂

  2. Mikko Haapoja says:

    Great post man. Gonna send this to my bros they started a photography company about a year ago. From everything I read in this post it seems like they’re on track.

  3. Martin Mark says:

    Great post Wes!

    As a fellow Canadian freelancer here are a couple tips I use as well:

    To agree with your point – H&R Block is the devil – never use them for your taxes, I’d actually have been MUCH better off using TurboTax which I’ve done in previous years.

    Log your receipts – Receipts suck, even if you put them all away in a safe place throughout the year chances are the ink is going to fade on some of them. What I do is take pictures of all my receipts as I get them, upload to Dropbox, and then log them in my accounting software.

    On HST – An important point to clarify is that if you’re a sole proprietor and haven’t made your 30K yet, and haven’t filed for HST – you CANNOT charge your customers HST. Furthermore, if you’re subcontracting, buying services, etc. for your business you’re going to want to make sure you pick up the HST number of the proprietor if they’re charging you.

    After you register your HST number, it’s a little better because you can pass on the 13% HST charge to your customers and hold the money in savings until you pay it back to the gov.

    Be careful about the expenses – While everything you’ve said is true, I’ve worked with a couple funded startups that have had a less than amazing idea about how things like CCA and expensing works (“we have money – everyone gets a new iMac! Including the contractor who we’ve only worked with for a week”).

    For items that are tools for your completion of your job, you’ll only receive a percentage of the tax benefit depending on the tool.

    For ex. Adobe Master Collection falls under capital cost allowance – so I only get a percentage tax deduction over the course of a few years. Yet, I get to fully expense the Adobe Creative Cloud subscription, because it’s a recurring service my business needs (again though, because Creative Cloud is a subscription, I don’t own the product – I do get updates to the latest and greatest right away though).

    Also, company meals, are only expensed at a 50% rate – and you really should log who you’re with and what the meeting’s about – expensing a lot of meals is a good way to get audited.

    On Incorporation – I’m personally not incorporated, but I’m definitely thinking about it. Aside from the tax benefits I’m hearing more stories about freelancers who are running late on projects that are getting sued for non-delivery. I’d rather have my company liable vs. myself.

    Also, another avenue to look at depending on how much you make is maxing out your TFSA before maxing your cap room on your RRSP. Depends on your situation though, if you’re making more than 40-50K I’d suggest running your RRSP first and then your TFSA (speak to your accountant first as always though).

    Sorry for the wall-of-text 🙂

    • wesbos says:

      Excellent advice, thanks a lot for sharing this!

      • Lukas says:

        Getting sued over late projects:
        I would make sure I have liability insurance of some sort for situations like that. If you get sick and can’t deliver on a date , you need to have insurance for that.
        I have general liability for my landscaping business . anything can happen , I learned it when a piece of wood hit a car driving by and dented the door , could have been worse . lesson learned .

    • Jess says:

      Martin Mark,
      When you upload your receipts to Dropbox, do you just trash the originals or file them?

    • eileen says:

      What accounting software do you use that accepts uploaded images of your receipts?

    • Sakthi says:

      Thank you very much Mark.

  4. Danielle Allen says:

    Can you (or anyone) recommend a good accountant for a startup freelancer in Toronto?

    Thanks for the tips!

    • wesbos says:

      Yeah you should check out waterford tax advisory (link in the post) and tell them I sent you. Really great and helped me out a lot. I’m also running a workshop on all of this but more indepth this sunday from 1-4 http://hackeryou.com/workshops/

    • Alex says:

      Contact [email protected]. They do a great job with tax, accounting, and bookkeeping – everything is done electronically these days…

    • Olena Stevenson says:

      I can help if you are still looking. I am working with few freelancers in Toronto, they can provide references. I did not mean to advertise myself, so feel free to filter me if you’re not allowing such stuff. I just want to help. I really enjoy your post, as my clients and myself, we all have the same struggles and dilemmas.
      I totally agree – everyone is going online with bookkeeping and filling – it works beautifully! But keep originals as safe as you can.

  5. Pingback: Everything I wish I knew running a sole proprietorship business | HackerYou

  6. Pingback: Accountant agrees to do senior citizen taxes for free | Kate's blog

  7. NKG says:

    thanks Wes, for posting useful information. I have quick question….

    Do we need work visa if we want to provide services to US clients on W8BEN from Canada (remotely)?

    I am self employed, provide IT services to healthcare clients.

    • wesbos says:

      No you don’t. The american company is hiring your company, which is Canadian, to do work for them. If you were being hired as an employee of that company, you would need it, but in this case the company is just choosing to do business with someone operating within Canada.

      • Wes,
        Great post!! It’s helping lots of people as I see. I have a doubt and maybe you would know the answer. I just started working as a translator, providing services to an American company, which asked to sign a W8BEN. I read that you also have US clients. Do you pay taxes to the IRS too or only to CRA in Canada?
        Congratulations on the amazing blog!!
        Ana

  8. Calvin says:

    Hi there,
    this is a great article, helped me a great deal. but I do have some questions
    first off, im a sole proprietorship and in the start up phase, and I am wondering how do I register my business NAME? my business will be operating out of the province of newfoundland?

    im aware of the not taxing until I make $30,000 but do I need to register my business name with the government? and if so where do I register? please help

    thanks

  9. Ray says:

    When working for US clients and receiving US cheques, do you file this as regular self-employment income and convert to Canadian on a T2125?

  10. Thank you so much. I wish I had read this advice a year or two ago – although I probably did, just not in such easy-to-understand terms! I am really heartened to find this crucial information, and can’t thank you enough.

  11. Irish says:

    I’m just looking into incorporating my company. The name is registered in Alberta but I’m looking to set up in Ontario. The biz is an online membership based website offering “groupons” to members and advertising (hosting)to participating locations (creative work sub-contracted out). I’m just launching with an office already set-up (along with website) and ready to prospect business, no capital, but want to incorporate instead of go sole-proprietary route for liability protection. Do you need capital to incorporate or can you incorporate and build capital as you grow? Capital converts to shares which will come later. I’m the officer, president, director, etc…no partners or directors. Any advice would be great. Thanks.

  12. Thanks for the great post, a lot of self-employed people don’t realize the tax consequences and claiming expenses for business activity.

    Andrew

  13. Nick says:

    I live in Ontario. I have a full time job yet I do vb programming on the side. I got my first huge contract to do a side job (under $5k) and I am wondering whether or not I should register as a sole proprietorship? If I don’t register I know I will be taxed only at my personal income level & realize that I cannot charge my client HST, but would I still be able to get back money from the government on receipts that include 13% HST? (i.e. If I purchase a new laptop, host a lunch for clients, etc) What about things that don’t have HST such as a parking pass? Can I claim that too?

    • wesbos says:

      I believe you can back date it, best to check with an accountant.

      • Claudia says:

        Hello,

        I live in Ontario as well and work full time and I am looking at importing jewelery from Mexico to sell among friends and on-line. What would be best?, have a business number under my name or start as a sole proprietorship?, I am a far cry from making $ 30,000 a year but I’m confused, tax wise, what would be the best route in my case?, thank you.

  14. Hey Wes!

    Just stumbled upon your blog! Lovely article really helped me as Ive been freelance for a year. It’s so refreshing to get the real insight if all this business stuff from another creative! I will def be keeping in mind the advices, ESP the ‘keep all your reciept one’! Wish I knew that from the start!

    Ps I went to Rye with Kait! Help me say hi to her!

  15. Thia says:

    Any recommendations for a health insurance broker and/or plan? Thanks.

    • wesbos says:

      I found one with blue cross. They have brokers who will choose the best plan for you. If you want an introduction to my broker (and live in the GTA) I’d be happy to do so. Just shoot me an email.

  16. Matt says:

    Great Article,
    I am an independent app developer and am wondering if I should create a sole proprietorship or incorporation before I launch my app.
    It is a line of business app that will store company information in the cloud, should I be talking to a lawyer or getting some legal advice before I launch?

    • wesbos says:

      Yes, that would be smart. One of the biggest benefits for an corporation is that you have limited liability.

  17. Peter says:

    Great article.
    I have a question regarding the sale of goods in BC without a GST or PST account,we are now in the process of applying for these accounts, however would we be liable for taxes on goods sold prior to getting these accounts?

    • wesbos says:

      In Ontario, as long as you are under the $30,000 limit for the year, you do not need to back pay. So when I get close to $30,000 in sales I should register with the government and start collecting from that point forward.

    • Joy Pinter says:

      Is the GST charged consistently once I’ve made my first $30,000.or do I get to make $30,000 after each 13 month period and then charge GST after that

      • Pamela Holm says:

        Once you make your first 30,000 with in the 13 month period, you have to register and continue with it from there, even if your income is lower the next year. Once it is registered and you have your number, then you charge the HST/GST.

  18. Viet Ha Pham says:

    Thank you for listing the pros and cons of a sole proprietorship. I’ve been looking into this and your post is extremely useful!

  19. Azriel Aharon says:

    I manage a non profit in the US and I contracted with a Canadian company in Ontario to do some consulting work for me. Do I have to pay HST on his services?

    • wesbos says:

      No, since you are an American, doing business in the USA your Canadian contractor will not need to charge HST. In Canada contractors need to charge the local tax of our clients, but since you are American, there is no tax at all.

  20. shayne gray says:

    Hi Wes – just going through the process now (in Ontario) and finding this very useful! It is a little confusing on the gov site, but I discovered you only have to register for an HST # if you’re revenue is greater than $30,000 PER QUARTER!

    I think I might hold off on that, although there are perhaps benefits to registering for one voluntarily (and yes, I would also rather my company be liable rather than me!).

    Quote from the gov site:
    “Small supplier – refers to a person whose revenue (along with the revenue of all persons associated with that person) from worldwide taxable supplies was equal to or less than $30,000 ($50,000 for public service bodies) in a calendar quarter and over the last four consecutive calendar quarters.”

    http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#ss

    • wesbos says:

      That is incorrect, it means if you have 4 quarters together (April 2012-April 2013, for example) or 30,000 in 1 quarter (and zero in the other 3). Its not 30,000 per quarter.

      • shayne gray says:

        Hi Wes – just to clarify, does that mean your revenue could be $29,000 for all four quarters without an HST number? Meaning as soon as you exceed $30,000 in a quarter, you would be required to register for an HST number?

        Thanks again

        • wesbos says:

          As soon as you exceed $30,000 in a year (4 quarters) or 13 consecutive months, you need to start collecting. If you exceed 30,000 in a quarter, you are obviously exceeding 30,000 in a year.

          Just register for the HST number, it doesn’t cost you a dime and then you are allowed to claim HST on your own purchases back. Buy a $1000 laptop? Get the $130 HST back. Sweet deal.

  21. C-Dawg says:

    I’m still not sure if I should Sole Proprietorship or Incorporate!

    I live in Ontario and have a day job that pays a decent paycheck. I’m converting a house into a duplex and intend to rent out both units while I rent off someone else (mostly because I need to move to another City for work).

    Regardless of the structure of the business I will operate in order to hire an accountant, lawyer and property management company to deal with the operations of the property.

    The house must stay in my name.

    I want to limit liability but do not wish to pay high taxes. I understand that during the first year or two I might operate with a loss, saving me taxes.

    What should I do?

    What should I consider that I haven’t discussed!

    Thanks in advance!

  22. C-Dawg says:

    I should mention that I anticipate that gross income will be $24,000 minus all costs (accountant, lawyer, property maintenance and management).

    This will be less than the $30,000 benchmark.

    • wesbos says:

      Very important note here: The $30,000 is before expenses. So if you make $32,000 and had $29,000 in expenses. Just because you only made $2,000, you still are above the $30,000.

  23. Hieu Dinh says:

    Hi Guys,

    Thank you very much for all information on your website. I am confusing to register a corporate or sole proprietorship.

    If a corporate I have to pay for account everymonth ?
    If I do sole proprietorship I only pay at the end of year ?
    If I do sole proprietorship, can I make a tax return if I sell over $ 30,000 ?
    If I do a corporate, but the corporate at the beginning does have enough money to pay wages, so how do I should for ?

    I need your advice !

    • wesbos says:

      1. No, you don’t need an accountant every month, you pay for an accountant as you need it (usually once a year)
      2. Yes, you pay at the end of the year for taxes. If you make good money, they will required you to pre-pay taxes 4 times a year
      3. If you do sole prop and make $1, you still need to do a tax return. Income is income. If you sell a horse to your neighbour, that goes on your tax return.
      4. You can pay yourself dividens, look into that.

  24. Sheryl says:

    Hi Wes,

    Great blog post. Had a question regarding one of your points:
    “As a business, you also don’t have to pay HST. So any receipt you have that includes 13% HST, you will get that back from the government when you pay your taxes.”
    Does that mean I can get 13% HST on an expense like a business laptop back, even though I haven’t registered for a HST number i.e. I’m not hitting $30K in a year and therefore, not charging my clients HST.
    Saw in your previous comment that you mentioned this and got slightly confused: “just register for the HST number, it doesn’t cost you a dime and then you are allowed to claim HST on your own purchases back. Buy a $1000 laptop? Get the $130 HST back.”

    • wesbos says:

      Its a two way street. In order to get HST back, you must be collecting it. So if you aren’t collecting HST from your clients, then you can’t get that $130 from the laptop back.

  25. Debby Gies says:

    Hi Wes! I stumbled upon your excellent page as I was surfing google to try and find out what the heck to do. I am a writer, about to publish my first book in 2 months. I will be publishing with amazon and I have obtained an E.I.N. from the IRS I needed this in order to fill out the W8 for amazon so that they would not withhold taxes, they will look after the taxes but I am perplexed if I should just stay an individual and pay taxes on my royalties at the end of the year or do I need a sole proprietor? I can’t see registering for HST# because these are royalties and no Gst is being charged in the U.S.? What are your thoughts? I’d appreciate it.

  26. Kemar says:

    Hi Wes
    I am in the decision of registering a business (Renovation)
    and i would like to know if i should go with sole or incorporation
    i do
    Painting(interior& exterior),
    Flooring(tile, Laminate etc)
    Drywall(install,tape sand Mud)
    Carpentry (trims,Baseboard doors etc)
    Plumbing (tub, shower, vanity install/repairs drains repairs )
    Electrical (outlet,switches ceiling fan installations)
    Tiling (backsplash,shower stall,etc)
    General repairs
    and when im registering in the description of the business what should i put
    LOVE YOUR BLOG!!!

    than you in advance

    • Petroula says:

      I would like an answer to the above question about painting, flooring….
      Although I made under 30k for the year as a sole proprietor, can I claim expense like supplies, tools, meals, gas, vehicles, home and office expenses, repairs and maintenance for vehicle, ….

  27. Izabela says:

    Hi Wes,

    Just re-started my own business as a sole proprietorship – mid way through the year, but for first 4 months was working full time in a “regular job”. Having a start up cost now, and no money coming from business yet, can i still expense i.e training, laptop, web hosting, and have this count towards my initial 4 month “regular income”? I am really confused about that, and do not want to buy things (although I will need them in a future), before MY business starts generating money if that will create a problem.

  28. D. R. says:

    Rules have changed. Google personal service business.if the government deems your business as a personal service business even if you are incorporated, you could still be charged the higher tax of a sole proprietor. You could save the money of becoming incorporated. This is happening especially with web based consultants and the government reserves the right to go back to previous years.

  29. Victoria says:

    Thanks so much for this! It is really helpful information. I’m starting up a distribution company from import goods from other country and sell it for Canadian company. It is small items and it won’t exceed 30,000 per year. Do i need to register HST even if i sell import goods not made in Canada?

    Thanks!
    Victoria

  30. Hi Wes,

    In one of your comments, you said the following,
    “Billing American clients is easy as you don’t need to charge the 13% HST. Just remember that you still have to claim and pay full income taxes on american income.”
    The part that your making to remember that you still have to claim and pay full income taxes on american income, can you explain further what this means? At this time when I get paid from an American customer, Im not charging them tax and it is filed in my quarterly that I didn’t charge tax, but your statement sounds like Im still supposed to pay on what I received.

    My second question, Martin Mark commented on was,
    After you register your HST number, it’s a little better because you can pass on the 13% HST charge to your customers and hold the money in savings until you pay it back to the gov.

    So If when you first start your business and your not charging the 13%, why would you have to hold money in savings until you pay it back to the government? That is telling me that in time, when I do start to pay taxes, it is now coming out of my pocket, what I didn’t collect before?

    I know there is a time when you have to pay full tax back to the gov if you have donated a product. The total price of that product,s tax amount amount is to be paid, even it you received no money.

    I appreciate your time and great article. Im looking forward to a time I can sit in on a teaching of yours.
    Thanks,
    Dennis

  31. Math says:

    Thank you so much for the simple and clear explanations on sole proprietorship!

    As for your concluding note about incorporating your business, I’ve looked into it and found that if you are are the only employee, you could be classified as a PSB (Personal Services Business). Which means, you won’t receive any of the small business tax perks and would be subject to a 39.25% tax rate. How would you avoid being classified as PSB?

  32. Hello, I am registered in Ontario as a sole proprietorship. If I want to do auctions live or online for example in Calgary or Canmore Alberta or Vernon BC on occasion, do I have to register a business in those provinces like I did in Ontario. My primary business address will remain in Ontario right now. Thanks.

    Cheers,

    Marty

  33. maria says:

    Great post!

    If I have a company registered in Ontario and have a client in Quebec, what taxes should I charge the client?

    Can you recommend any good accountants who have an understanding of being Ontario registered with clients in Quebec?

    Thanks!

  34. Mimi says:

    Loved your article. I’m looking for information regarding sole proprietorship contractor (self-employed) and Employment Insurance. I was told that there is a way for people like me to collect EI between contracts. If true, where can I find info about this? I believe I would need to contribute to EI to collect, but am baffled about how to go about doing so. Thanks.

  35. Trevor Wade says:

    I have been looking at doing my own books for my business. My question is this, when I input an expense and the expense had HST in it, do I record the net cost of the expense in the expense column and then record the HST separately? Or do I include the total cost of the expense in the expense column and then add up the HST separately? Thanks.

  36. Thank you for this very informative article! I’m also a sole proprietorship – a freelance translator based in Montreal, Quebec, and learning the ropes of starting my own business. Understanding taxes is definitely one of the big challenges!

  37. lucy says:

    Hi Wes!

    Thanks for sharing all those information.
    However I have a question.I am self-employed and have HST number for the past three years since my income is more than 30000. But this year my income will be less than 30000. Do you think I still need to pay HST to the gov.? any idea will be appreciated.

  38. Charlotte says:

    Great post!!!!!! I’m in the process of starting up a photog business and this helped clarify things!!! Following your thread 🙂 Thanks again.

  39. nikk says:

    Hi I jus want to be clear. I make 1200 per month. Do I need the hst number? How much do I pay per month on taxes. This is ontario.

  40. Lene says:

    answer to this one because it will notify me when you reply: Hi, I’m planning to start a web based clothing store. I have great plans …&& would love to know if I would need the accountant etc before hand ? I live in MA But I plan to sell world wide

  41. Narciso says:

    Hi Wes,
    I found your post very informative. After googling for the information I needed for over 5 hours, I finally found yours and I was glad I did. I have questions though. If my income is based only on ads and affiliate commissions for my website, do you think I still have to register a business in Ontario? Also, can I pattern mine to your business, or are we of different type of businesses? Thank you for your time and thank you for the great post.

  42. Seema says:

    Hi Wes,

    Thanks for the great article. I have a question as a sole proprietor did you have insurance?
    I read in a Canadian law text book that this is a good idea to reduce some of the risk of being “fully liable” personally. Please let me know your thought as I just opened up my own business this week….

    Thanks,
    S

  43. Seema says:

    2nd question

    HST

    If I register for my HST # is the HST I can get back only from purchases after I get the number? Or once I register and get the # I can claim all the business expenses that had HST for the year?? It makes a big difference to me as I’ve already racked up a bunch of HST on just set up fees. But I obviously just started and am not @ $30K yet.

  44. Mira says:

    Hello to every one, it’s actually a good for me to go to see this website,
    it consists of important Information.

  45. Jake says:

    Hi Wes, I’m a bit confused just about the concept of SP and how it is different than just selling something on eBay for example??

    If I say paint a picture and sell it to my neighbor, then how do I record that and say it was part of my SP business??

    Just a bit confused on how to use a SP.. thanks!

  46. TaxServices says:

    Excellent internet site. Plenty of handy info right here. I’m mailing it a number of buddies ans as well spreading with delectable. And of course, many thanks for your energy!

  47. Mo says:

    Hi;
    Intresting posts, thank you. One question -what is TFSI. I could not find referance on google.

  48. Vik says:

    Great post!! I’m in the middle of this journey as well, starting a sole proprietorship. My client is US based. I was wondering if there was a checklist that you came across when it came to dealing with US based clients. I will not be invoicing them based on hours but based on service provided (essentially, they will pay a biweekly amount like a salary). Do I need to file a W-8BEN with them? Is it recommended to have a US$ account with a Canadian financial institution or a CAD$? And if US$ is convenient, what are the tax implications given the fluctuating forex rates? Any advice on resources to look up? I will be consulting with an accountant but getting one that understands US and Canadian tax laws might be a challenge, I guess.

  49. Dennis says:

    I lost my job through redundancy a few years ago. I’ve made the decision to work on contract basis going forward. I am thinking of operating as a sole proprietor. I came online to research how I should go about accomplishing this…and guess what your article is the first I came up on.

    Can you please tell me:

    1. How do I start a sole proprietorship? Do I need to register? If so, where?

    2. Do I need to come up with a business name?

    3. When I do a job for a company, do I charge HST or do I just accept the ‘salary’?

    Thanks much…and continued success in your business.

    Dennis

  50. Kendra says:

    I have a question regarding doing business with the US. If I’m a sole proprietor, and I am contracted to do business (in Canada) from an American company, do I charge them HST? Also, once I’ve made 30K+ and register for an HST number, can I claim HST on goods purchased for the company, even if my only client is an American(if I’m not charging them HST?)

    • wesbos says:

      You do not need to charge american clients HST. It does, however, contribute to your $30,000 limit. If you hit $30,000, you will have to register for it, although you may never bill it.

      • sarah says:

        Just coming across this, years later still very helpful! I have the same question as Kendra still though.. If my only client is American, and I’m not claiming HST with them… but I exceed $30k with them.. Can I still claim HST on my expenses?

        It sounds like yes, but earlier I also read that you can only claim HST back if you are charging it… Thank you 🙂

  51. Sarah says:

    Hi,

    I just have a quick question. Say I am employed as a full time employee at abc company and make $32,000 a year. I want to start a sole proprietor business but project that I will only be making $5000 a year. Does the $30,000 mark include income from my empoloyer? at what point should I get my HST number?

    • wesbos says:

      Its $30,000 in sales, so I’m 99% sure you won’t need it until you hit $30,000 in sales on your business. Your employer income won’t factor into it.

  52. RSL says:

    Very useful information thank you.
    I have just become a Canadian permanant resident and US citizen .
    I work as independent contractor for US firms and some want to have worker compensation. Wondering if I set up a Canadian business would my workers comp cover the US

    Thank you,
    Bob

  53. Michelle says:

    Hi Wes, I registered my sales business back in April. I only made $268 in commission the rest of the year, but spent a little over $1000 in product. I also have a receipt for a business trip I took to Vancouver, for just the meals I had while being there, also one other business meal receipt and a receipt for business attire. Where on my Canadian tax return do I enter this stuff, and how much can I claim out of my meals/business attire? It was a very simple business that I did not do much with because I started going to school a few months after starting it. I would much rather try and do my own taxes instead of going to H&R Block because they are unfortunately a joke. Any advice would be greatly appreciated! Thanks in advance!

  54. Patrick Miron says:

    Hi,

    You say you need to charge HST to clients if you earn above $ 30 000 a year.

    What if you’re just starting and you are unsure if you will reach the $ 30 000? Do you still charge HST to every client? Or do you wait until you hit the $ 30 000 in revenue mark to start charging?

    I’m a little confused.

    Thanks,

    • wesbos says:

      Once you hit $30,000 you can/have to start charging. Before that, you don’t need to.

      • Rich says:

        But… as you posted earlier, you cannot deduct HST if you don’t collect it, so it would be wise to register and collect right from the start. Correct?

  55. Michelle says:

    Hi Wes. I just registered as a sole proprietor and will be contracting at a rate of 165,000 a year. Besides getting a good accountant is there anything else that is a must at this rate? I am completely new to this and a bit lost. I consulted an accountant who suggested I do the sole prop vs inc as it is just me contracting to a fly-in/out job. The company pays for flights from Calgary to site, and camp but the rest is up to me.
    Thank you for any help

    • wesbos says:

      If you are making that kind of money I would defiantly incorporate. $165k a year as a sole prop means you will pay an insane amount of taxes.

    • Michelle,

      While everyone’s personal situation is different, and this situation impacts the best business structure, given your relatively high level of income and low overhead it is probable that you would benefit from incorporating. Depending on your province of residence, this could also impact which province(s) you are filing returns in.

      Your accountant should also be advising you about ’employer employee relationship’ points in order to avoid the CRA deeming that you are an employee vice an independent contractor which could have severely negative tax consequences for you.

      If your accountant hasn’t given you a very good explanation as to why remaining in a proprietorship makes sense, then I would suggest you could benefit from a second opinion. We operate in most of Canada and would love to help, feel free to contact me.

      Andrew Pickard
      [email protected]
      (519) 476-1943
      http://www.fbc.ca

  56. ALINA says:

    Hi Wes,
    My husband works as a self employed carpenter. we registered a business just 2 months ago. We are not sure if he will have more than 30000 in self-employment this year as in the previous years he was employed. As I understand we don’t have to pay HST if earnings are below 30000, once hey are over 30000, we have to register and start charging clients. But what if income is 45000? do I have to back-pay my HST on the first 30000 earned, or do I pay HST only on 15000remainer. Or we start paying HST to the government only from the moment of registration? for example, If we registered for HST at 27000 we pay or do not pay HST for the first 27000 earned?
    Thank you in advance.

    • wesbos says:

      You pay HST once you register for an HST number. You must register at $30,000 or before. So if you register at $30,000, your $30,001th dollar gets taxed HST, not the $30,000 before that. If you register at $27,000, your $27,001th dollar gets taxed HST and not the $27000 before that.

      • ALINA says:

        Thank you very much Wes, All other sources are so vague about HST payments. I hope I understood your words correct… sorry for being a pain, we are new to self employment, I am already looking into getting in touch with accountant. So, in simple words, the first 30000 earned are kind of HST free (government will not charge us?) if we register at 30001?
        Thank you in advance.

    • Alina,

      Just having a look through old posts on the blog today to see if there is anyone who may need some assistance, and I stumbled upon your post.

      My thoughts for you is that there may be an opportunity to look at the business structure of the carpentry business in order to save significantly on WSIB remittances. If your husband is solely doing work for home owners (not businesses, or not sub-contracting to bigger companies to do work in a person’s home) then he must remit WSIB given the line of work he is in. I’m finding that there are many small contracting businesses such as your husband’s who can benefit from this strategy.

      If you haven’t had this conversation with your accounting services provider you should. If you need some assistance our company would love to help.

      Sincerely,

      Andrew Pickard
      [email protected]
      (226) 378-3637
      http://www.fbc.ca

  57. jake says:

    So if i make $29000 in one year i dont have to charge hst on those services?
    but if i made $35000 i will have to pay hst on $5000 to the gov.?
    Im in ontario btw

    So making $35000 with $0 in expenses means i pay $650 to the gov for HST and put down i made $34350 (35000-650) on income tax?

  58. Barber says:

    Hi name is joe, I just lease a great location and has potential
    I’m a barber got tired of the shop deducting for every little thing check was getting smaller every-month so I just decided to go on my own. Question is that I’m clueless on everything from paying taxes, to keeping track of everything. I’m only been in business for a month . I’m actually feel as if I’m spending more $ from my savings then I’m actually making here at the shop. Though I know it’s gonna take time. Can you please guide me insight. How to be over all balance in accomplishing & staying on track.please!!!!!

  59. Sheldon says:

    Starting a sole proprietorship as a contractor of services. I have a question about paying yourself out of your proprietorship. For example if you are charging out $75/hr to the customer plus material cost and mark-up. Is it better to expense yourself out a wage, say $40/hr, or pay yourself a percentage of each job, or take what is left over after expenses and after paying the applicable taxes on a quarterly basis? You said the government is going to tax you the same as anyone who is employed. I thought small businesses didn’t pay as much taxes to the government, like half as much, or is this based on annual income?

  60. Susie says:

    Hi Wes,

    I have recently went back into consulting , I am register as a sole proprietor. I will be making approx 125k annually. Should I incorporate? What are the pros and cons for sole proprietor vs incorporate?

    • wesbos says:

      Yes, if you are making that much there are only pros to incorporating. You will save lots on taxes and put liability on your company rather than you.

    • Susie,

      In most (but not all) cases at such an income level, incorporating would be highly advantageous. Two major reasons.

      1. A corporation can retain earnings at a far lower tax rate than you can earn them as a sole proprietor. Though you still have to pay them out to yourself (and are therefore taxed)in some manner.

      2. As a proprietorship you are effectively paying yourself a salary from the profits of your hard work. A corporation can pay its employees and shareholders in numerous ways, each of which have different tax implications. Salary and dividends are two of the most commonly used methods. There is an ‘ideal’ mix for you and your business that is dependent on not only your gross revenue and profit margins, but also your personal situation (family status, spouses income, number of children, etc.) among many other factors.

      I would recommend you seek a good accountant to help you do more than just file your taxes, but also develop a tax plan based on your unique situation.

      I would love the opportunity to learn more about your business to see if our company would be a good fit for you, and help you develop such a plan!

      Andrew Pickard
      [email protected]
      (519) 476-1943
      http://www.fbc.ca

    • jon says:

      Susie. Before you incorporate be mindful of the fact of what the purpose of your business is and learn about ACTIVE business income vs passive as CRA treats them differently and if yours falls into what is known as SIB ( special investment business and you earn your income from ( rental, royalties, interest, dividend etc ) you won’t be entitled to small business deducation so incorporating may not be the way for you.

      Don’t buy into this whole thing about ( if you earn over X you should incorporate ) there are alot of things that you need to know based on your type of business. Incorporating doesn’t always = saving/deferring taxes. It can actually lead to a worse situation.

  61. jhkang says:

    Thank you for all the valuable information. I am new to self-employment. I am a new sole proprietor with a new US client. I invoiced them last week and I was asked to fill out the W-8BEN form. I have read that I should fill out a SS-4 form to obtain an EIN (Employer Identification Number) so that they don’t withhold taxes. Is this true in your experience? I have tried to contact the CRA regarding this but the agent was a junior and am waiting for a call back from a more senior rep.

    • wesbos says:

      I’ve signed many W-8BENs in my day, no problem there. I’ve never signed an SS-4 (or heard of it). I’ve never had taxes withhelf after signing an W8-BEN

  62. Johnny says:

    Hi Wes. Thanks for this information. It’s quite helpful. I have a question. I realize you’ve moved on to the Incorporated world, but would you know: at what point do you connect your HST number with your Sole Proprietorship? Do you have to get one before the other in order to associate one with to the other?

  63. Sher says:

    Hi Wes

    I own a very small business in Ontario (sole proprietor). This year I might be $31,000 but next year I could be $27,000.

    If I register for HST because I go over $30k by a bit, what happens next year if i’m under? I’m hovering around 30K so it’s hard to predict if i’m going to be uner or over and if i’m under i’d rather not charge HST if I don’t have to.

    Once I register though I assume there’s no turning back even if I make $20,000 next year? I’ll forever have to charge HST (until I close up the business I assume)?

    Thank you!

    • wesbos says:

      Correct! Once you hit it, you must register and continue from there on out.

      Many people make charging HST sound bad. It’s no skin off your back and you can even get HST you paid (for things like laptops and cell phone bills) back! Go ahead and register 🙂

      • Sher says:

        Hi

        thank you

        • Sher,

          In many (but not all) cases it is highly advantageous to be registered for HST, even if you are under $30K in sales.

          As Wes outlines, you get to claim the ITCs (Input Tax Credits) which is the HST that you incur on the expenses related to your business. One common facet that people overlook is the HST they incur on their home office expenses. 13% on your phone bill, electricity, internet, etc. that is a business expense goes along way and accurately recording this information is only a few extra key strokes.

          Depending on who you provide the service to, is also a factor. For instance if you are a sub-contractor to other businesses, the HST you charge them will simply go towards their ITCs, so they are indifferent, and now you can claim your own credits back!

          Many tax providers (ours included) will file your HST return for you on an annual basis at no additional charge.

          If you find this helpful and would like to hear more about what our company can do for you, we would love to hear more about your business to see if there is a fit there! Please contact me.

          Andrew Pickard
          [email protected]
          (519) 476-1943
          http://www.fbc.ca

  64. John says:

    Hi
    I have online tech support business. All my customers are from USA. I charge them through my website ( credit card payments ). I am based in Ontario. Hopefully i would make more than 50000$ in this year.
    So should i register for sole prop or incorporation. I have no idea how and when i should pay tax and what is my taxable income . As i am getting money directly in my bank account from payment processor.
    Thanks

    • wesbos says:

      Get an accountant

    • John,

      It is hard to provide generic advice in such a situation, and I would caution you listening to anyone recommending a one size fits all solution.

      While incorporating offers improved flexibility as you are able to pay yourself in numerous different ways (salary, dividend, management fees, equity, etc.), there are also increased costs. Not only is registering a corporation typically much more expensive as Wes has outlined, your accountant will be required to send in different (aka more time consuming and expensive) information as part of your tax return.

      Further, beyond the simple dollars and cents of your business’ revenue, there is the issue of your personal situation to consider. Are you single or married? Do you have children and if so what are their ages? These are just two factors which many ‘tax guys’ fail to tell you about and coach you on when helping you make such a decision, because developing the optimum solution for each business takes time, and time is money.

      As for when you should pay tax, for most small business owners (partnerships and proprietorships) you are required to pay any amount owing to the CRA (Customs and Revenue Agency) by the end of April every year (this year May 5th due to the Heartbleed virus), and your tax return is due no later than June 15th. For those who run a corporation, their filing date and payment deadlines relate to their ‘fiscal year end’.

      It would appear as though you are down to crunch time to file your taxes for 2013 and need some good advice. I echo Wes’ comments, that you need some assistance. I recommend a good accountant or tax service provider.

      If you have any questions for me or would like to hear more about how the company I work for could help you in your situation, please feel free to contact me.

      Andrew Pickard
      [email protected]
      (519) 476-1943
      http://www.fbc.ca

  65. Janeen says:

    Hey, thank you for the information.
    I have a question, I work for the government of Alberta and my husband has a small business. It is a sole proprietorship. A friend of mine in his small business did our taxes and combined our personal and business taxes by making me the owner of 99% of his business and he owns 1% so that it would reduce the amount of tax we would need to pay. Now since the business has only been running for two years, last year after deductions my husband had a loss which then was balanced against my income. I hope I got all of that right of what I understood from the explanation given to me. Now my question is: is this legitimate, as my husband feels it’s a bit shady and was it done correctly. I realize there is limited info and I may not have explained it correctly.
    As well, what easy small business software should I get for him to use as I believe his ‘keep every receipt envelop system’ is not as effective as he thinks it is. As well do you have a recommendation for an accountant in Alberta.
    Thank you so much for any advice.

    • Janeen,

      Based on the brief information you have provided it is impossible to provide a 100% answer to your question, however a few red flags are raised to me here.

      The breakdown of a partnership (as it appears your business is now structured) is for the most part dependent on how much equity the partners have invested in the business (cash, assets, etc.) and how much work each partner does. I suspect that you didn’t invest 99% of the assets to fund the business, and it would appear as though your husband is doing almost all of the work. Therefore I wouldn’t be recommending to one of my clients to classify 99% of the business as yours and 1% as his, though perhaps there is more information I’m not privy to.

      There are numerous commercial off the shelf systems out there to track receipts. Our members obtain free access to a software package called Kashoo for instance, and other tax firms use different products. Ultimately you need to have ‘minimum records’, a day to day log of expenses and income as a bare minimum.

      As for a good company to work with in Alberta, I just happen to know one, the one I work for. We work throughout most of Canada representing over 50,000 Canadians involved in Farming and Small Businesses, and would love the opportunity to learn more about your husband’s business and explain the benefits of our approach! Best of all, when we take on new members we review up to the past 10 years of their tax returns in an effort to find mistakes(you would be amazed what people miss, or miss-file) and refile the returns. This service is included in the membership fee!

      I would love to learn more about your business to see if we would be a good fit, please feel free to contact me.

      Andrew Pickard
      [email protected]
      (519) 476-1943
      http://www.fbc.ca

  66. Wes,

    I love the blog post, you have certainly helped numerous small business owners or those with such a mind set learn a lot about taxes. I echo your sentiments – get a good service provider who can guide you on the complexities of your personal situation.

    Every business is different, and just because you’re in same industry doesn’t mean that you should be filing your taxes and tax planning in the same manner. Age, family situation, number of children, succession plan and business projections are just a handful of considerations that go into developing an effective tax plan.

    Does your accountant work with you throughout the year to help minimize your taxes, or do you just see them at the end of the year when you drop off your books?

    Does your accountant come to see you at your home or place of business to get a good understanding of your personal and business situation to take advantage of some of the points I mentioned above? Or do they just enter numbers into their computer and collect your fee?

    Will your accountant stand behind their work and represent you to the CRA if their is an audit or are you on your own? Is this representation included in your bill or do they charge you extra for their time?

    The reason I point these things out is most service providers don’t do these things for their customers. The service I work for, on the other hand we work hard to keep money in your pocket by empowering you to make effective tax planning decisions. You’ve never heard of a tax plan? We need to talk, please contact me!

    Andrew Pickard
    [email protected]
    (519) 476-1943
    http://www.fbc.ca

    • wesbos says:

      Yes, yes and yes. My accountant does all these things and any accountant that is worth your time should. Thanks for sharing your toughts on this blog!

  67. Srid says:

    Hi Wes,
    Thank you for this blog. It is very helpful for me.

    I am new to Canada. I moved here couple of weeks ago with a job offer from a US company. I was working for them as permanent employee before and now I am working as an Independent contractor. They will deposit the salary amount in my bank account. Am I required to register as a sole proprietor? If I register, I may have to rewrite the employment agreement and give them new bank account on the name of the firm? Can I just continue the way things are and pay the taxes in next April?
    Thanks.

  68. Brad says:

    Hi Wes

    My wife and i own a corporation that only makes 65k /year. My accountant says he wants us to go to a partnership as it is easier to manage than the corp and because neither of us have other jobs. He suggests it wont cost more in personal taxes and it will make it easier to get personal finance as our gross personal earnings will at least be shown over the little we try and take out of the corp. Any thoughts would be appreciated.

  69. alicia says:

    Can you invoice a client (side job) without registering as a business? Of course still paying the required taxes

  70. alicia says:

    Can I invoice a client without registering a business yet? Of course still paying the required taxes

  71. Melody says:

    Hi Wes,
    Thanks for the information you provided in the blog. I have a question for you. I have a full-time job, where I pay taxes, EI & CPP. I am now in the process of starting a very small company with very little income, maybe $10-15K a year. and for the most part that will not get much higher. I am still very much torn between corporation and sole-proprietorship. I really can’t seem to find at what rates you are taxed. I would like to go with the lowest tax rate I can, even if it does mean a little higher start-up cost. I am also wondering, what happens if I have the sole-proprietorship and get laid off from my other job, and I still able to claim EI even though I do have a company that I am technically “self-employed” by? Would that I mean I should stop paying into EI now, cause technically I will never be able to receive it? Thank you in advance for your knowledge

    • Melody,

      Typically at such a low level of income it wouldn’t be advisable to incorporate due to the increased costs. The start-up costs have been touched upon before in the blog, but on an ongoing basis the costs are higher as well. This is mainly due to the fact that a corporation has to file additional (read more complicated and time consuming) reports.

      Given your unique circumstances however, it MAY make sense to incorporate. The company I work for in additional to filing taxes also helps business owners make well informed decisions such as the right business structure. If you would like to talk with us further, please don’t hesitate to give me a call!

      Andrew Pickard
      [email protected]
      (519) 476-1943
      http://www.fbc.ca

      • NBlady says:

        Hi Andrew, I have two questions if I may.

        1. If someone was told they didn’t need an HST # for a year (2012) and then ended up going over the $30,000 threshold in that year, but then also didn’t register for the HST number or collect HST until the September of the following year (2013) because they didn’t realize they needed to….how would you deal with that? How would you deal with ITC’s for the 2012 year and for the two quarters of 2013?

        2. Regarding realtors and sole proprietors vs incorporations – If a realtor makes approximately $115k in a year, has a lot of expenses that would reduce his net income and also has no assets (house etc) to speak of, would it be better to stay as a sole proprietor or to incorporate?

  72. P walker says:

    Hello Wes looking for some advise looking to open a company in Nevada. Is it recommended to do so, and still have services in Canada?

  73. Ruth says:

    Thank you for the great post!

    I have a wondering about insurance. You have stated that you have health insurance, but is you have any other liability insurance for your business that you pay in addition? I’m in the research stages and wondering what is most helpful/crucial as sole proprietorship.

    • Ruth,

      Though my focus is as a Tax Consultant, I often run into current and potential clients who have insurance related issues and questions.

      The rule of thumb is, talk to your insurance provider. Depending on the nature of the business, the needs could be very different. For instance, I was talking with new clients recently who have a greenhouse operation and sell direct to consumers. Pulling into their sales area off of a busy highway, the need for liability insurance immediately came to mind.

      One unique opportunity most small business owners miss is the opportunity to turn personal medical expenses into pre-tax business expenses. While not an opportunity available for everyone, for some business owners there are insurance products available that allow for this (legally) and can save significant tax dollars.

      If your believe your business could benefit from such a product, perhaps we should talk further.

      Andrew Pickard
      [email protected]
      (519) 476-1943
      http://www.fbc.ca

  74. Kris says:

    Suppose a newly formed company is registered under HST, expecting revenues to cross $30000 in the near future, but in the mean time is making revenues less than $30000 should the company need to raise tax invoice to its customers?

    • wesbos says:

      Yes, as soon as you register you need to start charging HST, even if you register for HST at $2,000. The next dollar needs to be charged HST.

  75. Terry says:

    I know this article is a little old now, but everything here still rings true. The one thing I would add for Canadians is examining Health Insurance vs a PHSP. A PHSP has all your medical related bills flow through the business. The end result is they become 100% business expenses providing income tax relief at the end of the year.

    Let me now apologize in advance for this long winded reply but it’s top of mind for me right now:

    I recently added a small PHSP “benefits plan” for my 5 employees, providing a set amount of $ coverage per employee. If you are your only employee then you don’t need to define this obviously, but for employees you would define a set amount of say, $500, $750, $1000, $1500… whatever. Then I set mine up so that the employee submits there claims to our PHSP adjuster and is refunded back just like an insurance claim, it doesn’t really look any different to them except that it is 100% covered (as long as they don’t hit their maximum funding amount) vs an 80% prescription or 60% dental coverage of a normal plan.

    What is really happening is that I have prepaid the PHSP administrator and when a claim is sent in I pay the administrator 5% on the total of the claim, as well as my employee the claim amount. And then I expense everything.

    So for myself and my employees I’m only paying for what we use and I’m protected by the maximum set amounts as well as not having to worry about something like insurance premiums rising, the set amount only changes when i say it changes.

    There are some niggly things to work through with this. 1. If you are a sole proprietor the most can claim is $1500 a year. Corporations have no such limit.

    2. Also because it’s a pool of funds, it’s a blank slate. So you may want to invest in the insurance components that are part of a normal benefits package, Life, Critical Illness, Death and Dismemberment, Long Term Disability, etc . These are the cheap components of a benefits package anyway, and you can claim them on your PHSP. (I actually have one employee that went and got his own entire personal health insurance and is claiming the monthly cost of that plan on the PHSP plan).

    The way you win here is that it’s pay as you go and it’s 100% tax deductible expense to your business. If an employee doesn’t use tall their allotted funds, then you pay less.

    Now, if you are the sole employee when wouldn’t you do this? I’m not sure you ever wouldn’t. Most of the time what you pay a year in deductibles and insurance premiums are higher then the plan provides. If this wasn’t the case then insurance companies wouldn’t make any money.

    However, even if you knew you would spend more then the cost of the annual plan, you are still better getting both. Example:

    Say you had a plan that was $60/mth with prescription drugs 80% and no maximum (pretty awesome to have no maximum…but it makes the example easier). And further suppose you know your drugs you need will cost you… $2000 a year. And finally imagine a marginal tax rate of 30%.

    720/yr for the plan * (1-.30) = 504.00 after income tax cost.
    + 400 deductible (the 20% of 2000 not covered)
    = $904 after tax dollars ($1120 if your plan is outside your business).

    PHSP only:
    2100 (2000 + 5% admin fee) * (1-0.3) = $1470 after tax dollars

    Plan + PHSP:
    720/yr for the plan * (1-.30) = 504.00 after tax cost
    + 420 ($400 not covered by plan and would be submitted to PHSP + 5% PHSP admin fee) * (1-0.3) = 294
    = $798

    So in this small example, you would save about $106 by having both a health plan + PHSP.

    Hopefully that all made sense, I would encourage any small business owner to look into this, the tax savings add up.

  76. Chris says:

    Okay, I get that I will need to be a sole proprietor, but I have a couple of questions. I have an opportunity to work for an organization in the US, that I have been volunteering for the last three years (tech support for YouVersion). I’m near Ottawa. I would be working from home and possibly traveling down there to visit the site (I have figured out that I may need a B1 Visa for that). My questions are these:
    I’m not sure how much I will be paid yet (this is a full time position, in charge of volunteers from around the world), so I’m wondering if I will need to get an HST number? I’m guessing I will, but want to make sure. Even though, as I understand it, I will never be billing it to them.
    Also I’ve read that I need to fill out a W-8BEN (from above), but I’ve also read about other forms like a 1040N and 8833, or something like that. Any ideas on that?
    Oh and do I ask to be paid in Canadian, or American?
    Thanks so much for your help!!

  77. john says:

    Great article. Clear and concise unlike a lot of info found online.My question is in regards to your comment about back dating. Specifically about not registering a business # or HST acct.and already going over the $30,000.00 threshold.Could you please expand on your knowledge about the process of back dating a sole proprietary business and what is involved in this situation, such as time frames, possible penalties, etc. If this is not the appropriate forum maybe you could provide reliable links. thank you in advance

  78. Peter says:

    Great blog. I am currently employed earning a decent salary in the 90k range and I am starting small business importing fashion goods to sell online. If I add any profits to my current salary from a sole proprietorship the taxes are insane. Am I better off incorporating because of my current salary or is it really close to a wash at the end of the day when I pay myself out from the corporation?

    Thanks

    • wesbos says:

      If you intend the money to be in your own pocket at the end of the day, there isn’t much you can do about getting taxes. Income is income. There are some nice benefits on the first 30k you pay yourself with dividends from a corp, but your other income will cancel those out.

      What would I do? Keep the money in the corp and have it taxed at 15%. Then, when your income is lower (or you have a significant other you can pay as a shareholder), you can take it out at a lower tax bracket.

    • Peter,

      Deriving a taxable benefit from your corporation is a function of numerous factors, the most common ones being net income (profit), your taxable income from other sources (such as your job), and an effective tax plan.

      The strategy Wes is suggesting makes sense in general (retaining the profits in the corporation at the Small Business Deduction rate, and drawing it at a later time when your income is lower), but there may be other factors (personal situation, near and long term plans, pensions, etc) that would negate such a benefit.

      Also, increased fees (both start up and ongoing) may make it ‘close to a wash’ at the end of the day, again all situation specific.

      There may also be benefits to starting the business as a Proprietorship / Partnership as a proof of concept for a year or two in the event that it doesn’t prove to be as profitable as you had forecast, to avoid fees, etc related with initiating and shutting down a Corp. Note that tax savings is only 1 of numerous factors to consider when considering incorporating, if your lawyer is recommending to incorporate for liability reasons but there is no benefit from a tax perspective, I think it would be silly not to heed your lawyers advice.

      Generally if I see value in a client incorporating for tax savings I will project for them their taxes year to year to show the savings, weighted against increased costs. I would also discuss longer term plans / implications (the ability to pay a dividend out at a later date from retained earnings for example). In short, there is value in having a tax consultant come up with an individual plan for you and your business, everyone’s situation is different, and every tax plan should be different.

      Feel free to contact me if you would like to discuss your situation further.

      Thanks,

      Andrew Pickard
      [email protected]
      (519) 476-1943
      http://www.fbc.ca

  79. sk says:

    Hi Wes – excellent info thanks for that.

    Quick question – my question is around CPP contributions. I’ve heard that as a Sole Prop. one has to make double CPP contributions (one as the employee contribution and one as the employers) is that accurate?

    I have a 6 month contract and at my hourly rate it would be just under $30K so I am not sure if I should register or not. If I incur overtime then there is a possibility I could go over the $30K mark. If however, I have to make these double CPP contributions then I am reconsidering my decision to register and get a GST number….Your view?

  80. Lisa says:

    This is so helpful to read! Thanks! I was hoping for some clarity for my own situation. I’m currently employed full-time (not giving up my full-time job) but am looking to make a little bit of extra money on the side as a personal trainer (I’m recently certified). I would estimate I would make less than $5,000 per year doing the personal training on the side since I already work full-time and just want a little bit of extra money. From what I understand, I should incorporate as a sole proprietor. From there, I would not charge any potential clients HST (since I’m under the $30,000 mark) but would have to include any extra income I make as a personal trainer with my current income from my full-time job (I’m in the $60k range with my full-time job). Please let me know if my understanding is correct! Thanks so much!

  81. ryancecc says:

    I want to purchase things for the business prior to actually starting the business. Can I claim those purchases at tax time if I get the company going with in the same calendar year?

  82. Vidya says:

    Hi,
    Thanks for this blog post. I have a question and am hoping you can help me.
    I currently have a full-time job in Toronto and my salary is in the 70K range. I have a plan to open something on the side as a sole proprietor. The nature of this will be to write research reports, publish and sell them online. I dont see this hitting 30K for the year in terms of generating revenues. Should I open this as a sole proprietor or is my 70K full time job going to impact this taxation regardless. Also, if I have a website, should this website have my name or the name that I register my sole proprietorship under. The name for the website that I think to use is Real Research. Please let me know when you have a moment.
    Thanks,
    Vidya

  83. Hello there, I think your web site could possibly be having browser compatibility issues.
    Whenever I look at your site in Safari, it looks fine but when opening in IE, it’s got some overlapping issues.
    I just wanted to give you a quick heads up! Apart from that, wonderful blog!

  84. Angela says:

    I recently started charging for graphic work. I am no where near $30,000 income. But I have done some research for setting up a sole proprietorship and registering for HST account and have one question. After I register for HST and start charging on invoices, I would like to claim HST I have paid on items like a new laptop, internet service at home etc. If the HST amount I collect from clients is less that what I claim, what happens? Do I still get a credit for ALL of the HST I paid out or only up to the amount I charged my clients? Is there a link to somewhere I can read about what is allowed to be claimed for work from home businesses?

  85. AL says:

    Hi
    I am already registered for HST (since 2011). But this year, I haven’t worked so far, so no income yet. Now there’s an opportunity with a client. Should I officially start charging him 13% HST right away? Or should I wait until my sales reach the $30,000 mark? If I start charging him right away, my price will be a little higher than competitors and he might not do business with me. (That 13% will make a difference). Right now, I am not sure if I will exceeD the $30,000 limit.
    What should I do, legally/officially? Start charging or wait until $30,000? (Note: I am already registered)
    Thanks
    AL

  86. Poornima says:

    Hi Wes,

    First, one of the best sources of clear information I have found on the web on the topic. Thanks for that.

    I have been thinking about sole proprietorship in ON, I called Service Ontario about business name registration and they said it is not necessary unless I am operating under a name other than my own. I assume the $60 in the $60 vs $500 you were referring to is for the business name registration?

    Do you think it is necessary even if I were operating under my own name?

    Another thing I have been facing is that I am on an Open Work Permit and I am not sure if I can become a sole proprietor or incorporate when on work permit 🙂 Do you have any idea about that?

    Poornima

  87. Steve says:

    Holy cow!!!! I am so overwhelmed. I’ve been freelance copywriting for a month or two now on the side of my full time job and I’ve made a little bit of money. As that starts to become more and more consistent I am strongly considering setting myself up as a legitimate business but this is one area that I have next to no knowledge about. This stuff has been helpful thanks so much.

  88. Anshuman says:

    Hi, the blog is really helpful. I had one quick question. Throughout the year, I have been paid in cheques addressed to me. Now that I’m close to $ 30 K, I will register for an HST/GST account. Do I need to register a business name along with that ? Will the cheques then be addressed to my business name and consequently, will I have to open a separate bank account for the business ?

  89. Ingrid says:

    Hi Wes, I am self employed. My invoices up until now have simply stated that the cost includes gst. Do I need to be showing the breakdown of cost for service plus the gst? Or just the total cost OK?
    Thanks

  90. Lisa says:

    Hi Wes,

    I am looking to register my photography business very soon. My residence is in Gatineau (Quebec) but 99% of my clients will be from Ottawa(Ontario). It seems like the personal income provincial taxes are much lower in Ontario then in Quebec. Along with the language restrictions, would you recommend registering my business in Ontario instead of Quebec? I do know that I have to have an address in Ontario and I am looking into a Virtual Office plan with a $30/month fee. Just curious if it will even out with the high taxes in Quebec.

    • Ski Man says:

      You have to pay personal tax where you live. You cannot pay personal tax on Ontario if you do not live there. To do what you are thinking you need to start a corporation in Ontario and pay corporate taxes there, however if you are resident in Quebec, you will pay personal tax there.

  91. Natalia says:

    Hi Wes,

    Your article is great and I am going to forward to my freelance pals who have zero clue about this stuff.
    Here is my concern: I registered my business last January 2014 and I set up my HST reports as Quarterly. It has been my first year of business, and I was presumptuous in thinking I would earn more than 30K for the year. I earned less than this, however, I still charged my clients HST.

    What happens now? Do I still need to pay my HST back to Canada Revenue even though I earned less than 30K? Do I need to file at all?

    I’m very confused.

    Your guidance would be much appreciated.

    Thank you.

    • wesbos says:

      Yes – once you register for an HST number, you have to start charging HST. The 30k limit is for the latest you MUST register, but if you registered before that and collected HST that is totally fine.

      So, since you collected the HST, you must pay it and file your taxes. If you only made $50 and collected HSt, you still have to pay that HST as well as pay taxes on the $50.

    • Natalia,

      Happy New Year!

      You may want to reconsider being a quarterly HST filer and converting to an annual one. This will save you from either personally going and filing a return 4 times a year or from having to pay someone for 4 appointments when 1 will do.

      I wouldn’t necessarily recommend de-registering for HST as you are below the $30,000 threshold as it is likely that your customers are used to paying HST and you can make a little bit of interest off the money over the course of the year.

      Either way as you are a quarterly filer, any changes will have to be made prior to the end of January or you will be ‘stuck’ with the way you are doing things for another year. If you need some assistance, our company may be a great fit for you and we would love to help!

      Andrew Pickard
      [email protected]
      (226) 378-3637
      http://www.fbc.ca

  92. Amanda says:

    Hi Wes,
    Great post! Tons of great information.

    A few questions – I will be hosting 7 workshops in the states next year – Boston, Fort Lauderdale, New York, Philadelphia, Minneapolis, Charlotte and Santa Barbara. I’m currently residing in Ontario but am a dual citizen and hold citizenship in both Canada and the US.

    In charging a fee to attend the workshop, do I charge some sort of tax? If so, will that be determined by the individual state? If so, which tax?

    Would it be smarter for me to claim Florida residency again, as that is the state in which I lived for many years?

    Is it possible for me to be a resident of FL and live in Canada at the same time?

    Grateful for your advice.
    Thank You!

    • wesbos says:

      No idea – that is pretty unique. Best to get yourself an accountant.

    • Amanda,

      Happy New Year and best of luck in your business venture!

      There are several potential issues with what you’re doing and your proposed tax planning strategy (residency). The long and short is that there is tax treaty between Canada and the US that dictates who you’re responsible to file returns to and remit income taxes to. At first glance it sounds like you’re a resident of Ontario however I would recommend that you talk to an accountant (in detail) to determine this.

      Outside of these acute issues, my next thought is what’s your business structure? Sole Proprietorships, Partnerships and Corporations all make sense in certain situations, which one is ideal for you is the product of numerous factors principally your near and long-term plans, your income sources and your industry to name but 3.

      So to boil things down for you it sounds like you’re embarking on a very exciting period of your life professionally and I would highly recommend that you consult professionals regarding your personal circumstances to help you avoid risks and maximize your opportunities. Our company would love the opportunity to talk to you if you have further questions.

      Best of luck!

      Andrew Pickard
      [email protected]
      (226) 378-3637
      http://www.fbc.ca

    • Ski Man says:

      Not possible to be resident of Canada and another country at the same time. If you give up residency in Canada you must no longer hold any assets in Canada.

  93. Yam Cooper says:

    Hi Wes,

    Thank you for this article!

    I am an author, illustrator and motivational speaker dealing with topics of anti-bullying and self-esteem among children. I am looking to sell my books at various locations such as malls, who require that I have liability insurance to be in place if I am to be vending on their premises, in case some guy falls around my table and he sues me/the mall,

    Do you have any recommendation on where I can find liability insurance that is low cost for this purpose? Currently the quote I received is way over my budget as a small sole proprietor.

    Thanks!

  94. Nicole says:

    Hey Wes,
    Thanks for this article. It’s a bit of a pain to find something online about this especially for those based in Canada!

    I just have a question (if you have any experience with it): if you’re a sole proprietorship, is there anything you have to do when you are hiring another freelancer or self-employed person (i.e. short-term contract and not as an employee)?

  95. raetech says:

    Hi Webos, thank you for this post. This is the most useful blog i have come across on the subject. i am about venturing into a business in January. I am quitting my full time job and will be taking on a contract to do almost the same job i was doing from the same company. I may not be selling much stuff but my annual income from the contract will be in excess of $110000. I have register with the CRA for an business number and HST but since i am only working with one client for now i am not sure if i actually need the HST. I intend to pursue other contracts with other companies though. Any advise on this? thank you.

  96. Catherine says:

    Hi, great information here! I have a problem I don’t think has been addressed. I have been in business about 5 years and my gross revenue has always been below $30,000…until this year. After doing my books for this year, I discovered that I passed the $30,000 mark back in July. I just registered this week for my HST account and business number. My question is, what happens to the revenue I should have been collecting HST on from July-Dec? Do I have to pay ‘back taxes’?

  97. Alex says:

    Hi Wes,

    Great post! Thanks for all the useful info!
    I started a sole proprietorship in Feb/March 2014 and also registered for an HST number.
    My first invoice was mid March 2014 and I’ve collecting HST since. The overall income so far is under 30k
    My questions:

    1. When should I pay the GST?
    2. When should I file the income taxes of the sole proprietorship?

    Thanks a lot in advance!

    • wesbos says:

      Both will be paid at your regular personal tax time in April – you can file for 2014 now though to get it out of the way.

      • Alex says:

        Oh man, thanks a lot! – You are the best! If I ever run into you somewhere I’ll buy you a beer…
        Thank you!

      • Wes,

        You’re guidance here is pretty much bang on, I would never recommend waiting until after April for someone (not incorporated) to file their business return but I wanted to point one small thing out.

        For most business owners (sole proprietorships and partnerships) the actual tax return for the business (a separate schedule on your personal return) is due by the middle of June, though any amount owing is due at the same time as your personal tax returns (end of April).
        http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ll-dts/frms-eng.html

        So if you’re back’s against the wall for some reason you can avoid penalties by filing your return in early June, but why remit 5% interest to the CRA if you don’t have to. The same story for GST/HST, must be filed by the middle of June but again you’ll be eating the interest bill if you’re in an owing position (most businesses with the exception of farmers and fishermen typically owe HST).

        Andrew Pickard
        [email protected]
        (226) 378-3637
        http://www.fbc.ca

  98. Andy says:

    What if my sole proprietorship business makes less than $30,000 per year but I still work full time and make approx. $40,000 per year. In Ontario Canada. Do I have to register for HST?

  99. Julia says:

    I’ve been freelancing in Ontario and even though I’m not at the 30K threshold yet, I’m going to register for an HST # so that I can claim ITC. My question is the same as this one below – If I want to register my business as a name other than my exact name..say “JT Design” instead of “JT”…do I have to open a bank account in “JT Design’s” name and have cheques made out to that or can I keep my income all going into a “JT” bank account and still just file a personal tax return as a sole proprietor? Up to this point all income earned from freelancing has just gone into the JT account. Thanks! (You definitely cleared up a lot of my HST questions!) Oh, also – do I get to choose a year-end date or does it start from when I register for the HST #?

    “Anshuman says:
    November 4, 2014 at 1:24 am
    Hi, the blog is really helpful. I had one quick question. Throughout the year, I have been paid in cheques addressed to me. Now that I’m close to $ 30 K, I will register for an HST/GST account. Do I need to register a business name along with that ? Will the cheques then be addressed to my business name and consequently, will I have to open a separate bank account for the business ?”

  100. anna says:

    Hey Wes,

    Thanks for this… I have been running my business for 4 years now and it is continually growing. I am now in the situation where I will gross just over 100.000 K in 2015. I am a small retail clothing business. What do you mean by if we make a certain amount of money we should incorporate because we get taxed more if we are a sole proprietor… how do you mean?

    Also I am starting to grow to the point that I need help with how to keep track of my money a little better and pay myself properly and start a savings, understanding my books better… yadda yadda- I am now looking into getting an account or book keeper to not just help me file year end (I can still do my own quarterlies for now) but also help me get on the right track business wise- is this the right route? I have found my last accountant was great at taxes and saving me money but not at financial direction. help!

  101. Annie says:

    Hi Wes, great post!

    I’m really lost and confused with the tons of information on the CRA website. I’m temporarily residing in Toronto and I’m working as a self-employed translator here since August 2014 (I’m not Canadian). I make less than 30K/year, so I assume I do not have to register for HST, but I did register my business last week (sole proprietorship).

    My question is: is the form T2125 the one I should be filing? Should I really file it even when I’m not registered for taxes?

    I’ve been told there’s a good place (a chain?) that helps filing taxes forms and they charge between $30 and $200 according to the individual’s case – as I’m not a permanent resident nor a citizen, and my business did not start here, but in Europe a couple years ago; do you know which company this is?

    Any suggestion/advice would be much appreciated.

    Thanks and congratulations for this post!

  102. Andrew says:

    Have done consulting work in December 2014 and now am invoicing client in Jan/Feb for this work. Does the income and HST contribute to 2014 totals or 2015? Thanks very much.

  103. christine m says:

    Hi there,

    I am an art director who starts a freelance gig on Tuesday so I’m looking to get my company registered ASAP and didn’t realize how confusing it can be so thanks for this article. Is there a pro/con to incorporating (sole proprietorship) federally vs provincially (ontario). from the limited research I’ve done it looks like it’s $200 for federal and $300 for ontario.

    Also, any terminology advice for picking a name (i.e. should i use the word ‘consulting’ in the name) or does that matter for tax purposes?

    thanks, Christine

    • Ski Man says:

      Incorporating is not the same as Sole proprietorship. The name of your business has no bearing on HST, GST or Income Tax. You don’t even need to register a business name at all if you are a Sole proprietor and not a corporation.

      • mains de mariposa says:

        That’s actually not true. The only time you don’t need to register the business is if you are using ONLY your exact name as the business name. But if you add any other word to your business name or use anything other than your own personal name you need to register the business name (at least in Ontario you do). So if your invoices simply say “Jon Doe”, you’re good. But if your invoices say “Jon Doe Consulting” you need to register that name.

        If you’re in Ontario, this website walks you through it and you can register online immediately. A sole proprietorship is $135.

        If you’re in another province, look for their Business Development group.

        https://www.bdccanada1.com/bdc_order/index.php?website=index&page=login&op=index

  104. christine m says:

    I’m just discovering that the first part of my comment may be a bit confusing. what I’m seeing is that if you are registering as a sole proprietor you are NOT incorporating, correct? If I want to become a sole proprietor do I simply register my business name on this site? http://www.canadabusiness.ca/eng/page/2730/sgc-35/#sgcselect

    thanks,

    Christine

    • Ski Man says:

      You are born a Sole Proprietor, it is not required to register a business name to start doing business. There is some advantages to registering a business name such as being able to open an bank account in your business name and other situations like this. Usually you would register a Sole proprietorship with your provincial agency.

  105. Mary says:

    Hi Wes,

    I have been working in the corporate world for many years and found myself out of a job a couple of years ago. I found a job in sales (working from home) and being paid 100% commission, hopefully exceeding $30,000 this year.

    My question is; would it be best to register as a sole proprietor or consultant? The company that I work for has suggested this.

    I would appreciate your professional opinion, Thanks Wes

  106. Elissa says:

    Hi Wes,

    Im looking into incorporating versus running a sole proprietorship, but am clueless with what I need to do in terms of record keeping/reporting/what needs to be saved after each sale. It is a water filtration company that involves both wholesale sales and retail sales, as well as installation.

    Is there a course or a company I can go to that will do all this for me?

  107. Gili says:

    Hi Wes,

    Did you end up incorporating? If so, what has been your experience?

    Thanks,
    Gili

  108. Having read this I thought it was very enlightening. I appreciate you taking the time and effort to put this article together. I once again find myself spending a significant amount of time both reading and posting comments. But so what, it was still worthwhile!

  109. Pingback: Forth and Wild - Friday 5

  110. Tina says:

    Thank you for the great info! I will get an accountant as soon as I am able to afford it.

    I have a question. I took and paid for training courses in 2014 with the plan to start a sole proprietorship as soon as I am done. This training was not at an educational institution such as a university, but a non-profit company. Due to the length of the training courses, I was not able to begin making money as a sole proprietor until 2015. Can I write off the training courses in 2014? If yes, how? Under my sole proprietor ship company as an expense or under general education?

    Thank you

  111. Simone says:

    Hi Wes,

    Informative Blog!

    I own a very small business in Ontario ( as a sole proprietor) grossing between 30,000 to 100,000 yearly(doing renovations). I have two workers who I sub the work out to, whenever I get a new contract. Do I need to do up a T4 for them? It so which one?

    Let me know.

    Cheers,

  112. Crystal says:

    If I own a corporation, can I invoice the corporation a consulting fee rather than taking dividends/payroll? Then I suppose my personal tax return would still continue as a sole prop. Can that be done?

    • Ski Man says:

      A personal tax return is always necessary if you are putting money in your pocket. If you receive payouts from the corporation it can be taxable on your personal return. But if you pay yourself as a consultant you will pay the personal rate on all the money. If you take the money out of the corporation as an owner you will be protected from some double taxation and generally pay lower corporate rates.

  113. Mercedes says:

    I’ve recently lost my employment at a company but still have my sole proprietorship. It’s just me and incorporating, although tax percentages are much lower, sounds complex and expensive for one person as I’ll be using my rented apartment as my home office. Since SP is based on personal income, can I assume if I bill the same amount out in one year to match what I made in 2014 when employed, that my take home will be the same based on SP versus employed? Taking the HST out of the equation, can I make this assumption? If so, so long as I am paid what I had before, I should be okay financially. I’ve read a lot of articles about the costs of incorporating and accounting fees being very high and would take the extra money you saved on a lower income tax going to these extra costs.

    One other question is if I have a US customer that I bill, but must travel to the US to do the work (they pay my flights and hotel etc so it’s easier for me), do I need to file for a US immigration permit or will I be allowed to travel and say I’m there on business as a Sole proprietor?

  114. niki says:

    Hi my husbent run small businesses general contract i help hem pick up paint,order,delivered he give to me end of year $10.000 for job what i perform two week ago i receive call from CRA they ask for some informations what is my job yesterday i receive note I’m employee and my earning was pensionable is wort to go thru invoice,cpp,t4 for $10.000

  115. hmad says:

    I am planning to get my business registered as sole proprietor in coming week, I am a freelance web designer works under a different name then my name. I am hopping to made about 40K a year, my question is If i register next week do I have to provide details of my earnings before getting registered? As you may know being a freelancer the incomes are not consistent, some months are good some are dead…

    Does a registered business help drive more sales or it doesn’t matters?

  116. hmad says:

    one more question, is it a good idea to start with a Corporation instead of starting with sole proprietorship

  117. shakti says:

    hello
    who did you go to for health insurance
    ive a small business and i need it urgently
    many thanks for a great post
    shakti

  118. kevin says:

    Hi Wesbos,
    Thank for your time. I would like to ask you on thing related to HST. My income only from invest in mutual fund and from private mortgage and if it is more than 30K/year, then do I need to register HST? ( I do not do the retail or sale any goods/services).
    Thanks,
    Kevin

  119. Josh says:

    Hi there,

    Great and informative article. Quick question – what exactly constitutes income, does “free stuff” count? And does it make a difference if free stuff is the only thing you receive? In my case, as a golf blogger (which isn’t my livelihood), I may receive free golf, and am going to be receiving “free” apparel soon in exchange for writing a review. I haven’t to date been receiving any cash compensation related to my blog.

    If “free stuff” does constitute income, then obviously all associated expenses would be eligible to include in a tax return as well?

    Thanks for your help!

    Josh

    • wesbos says:

      Good question – yes – anything that you receive as payment is considered income so you need to claim the value of those goods. Best to chat with your accountant.

  120. Max Quagliotto says:

    Wes! I never knew (I should have spoken with you a loooong time ago!). I do some freelance web-development on the side and just registered a BN (Sole Proprietorship) but am still confused about a lot of things business-wise. This blog post is so relevant to my situation and I’m now considering hiring an accountant to assist. Anyway, thanks for this. So to reiterate: There’s no harm in registering for HST right away, correct? And if I do, I HAVE to start charging HST on all my services right?

  121. taryn murphy says:

    Hi!

    I read this article from time to time as I am SO confused about taxes!
    You make it so simple and great. I do however have 2 questions.

    This is my first year in business- its going great, i have filed for an HST number.
    I branched out into the world of interior design (from furniture making/refubishing) and i purchase all furniture/decor for my clients- and then they pay me back. and THEN i charge a certain amount for my services.
    Do i have to charge HST when they give me the expense (ei, furniture decor) money back?
    I get so confused as I have already paid HST on these items and I didn’t make profit on them! Its just a straight number in my account (which I’m not sure if i ever get audited that they will know this)

    what should i do? charge HST?

    also. a lot of my purchases are online (kijiji and craigslist) how do I account for those as an expense as i don’t pay hat and there are no receipts given.

    Let me know, your help would be so greatly appreciated!!!!

    thanks!

    • Ski Man says:

      Not getting a receipt is not an excuse. If you can’t get a receipt then don’t buy the item or you won’t be able to deduct it. If someone sells something they should be prepared to give a receipt unless it is illegal.

    • Beatrix says:

      I have gotten into the habit of requiring a signed hand-written receipt for used goods I buy so that I can claim their expense on my taxes. In your situation I think this would be even more important. As for the HST – they’ve already paid HST via you so no I don’t think you should be charging any additional HST on anything except for your own added fee. The service you are providing is taxable, but they are essentially buying this furniture directly since you are not taking any commission, so it seems like a straight forward transaction to me. I’m no expert though!

  122. Bryan says:

    Hello,

    I have a unique taxation question.

    Let’s pretend that my company is “Aeromiles”. I am the middle man between “Vendors” and “Customers”. The money flow is as follows:

    – “Vendors” order $10,000 of services from “Aeromiles”
    – “Customers” earn miles
    – “Customers” want to spend miles on “Vendors” products
    – “Aeromiles” purchases $9,000 of “Vendors” products on behalf of “Customers”
    – “Vendors” ship directly to “Customers”

    So basically, “Aeromiles” is getting paid $1,000 for services (since it’s recycling most of the money back into the “Vendors”).

    Thus, my main question would be: Can I deduct the $9,000 in purchases as a corporate expense? And if so, what category would it fall into?

    Thanks!

    • wesbos says:

      All those “quotations” make it look like a money laundering scam! You should get an accountant or call the CRA.

      • Bryan says:

        It seemed easier to read with quotations (and obviously I’m not proposing a money laundering scam :)). The CRA website seemed to have no info on the subject, so I thought I’d give this website a shot.

        The business model is basically the same as Aimea’s Aeroplan reward system. From my understanding, Aeroplan gets money from vendors for every mile earned. When customers decide to spend miles, Aeroplan places an order directly to the vendor.

        Now from Aeroplan’s tax perspective, are unused miles considered deferred liabilities, and used miles considered liabilities (and thus deducted from taxes). It’s essentially a question of: Does Aeroplan pay taxes on miles that are owned by their customers? Or do they just pay taxes on the % cut that they take from the service?

        I’m trying to develop a system where 90% of the money earned is transferred to customers in a reward system, and only 10% is actually taken by me as an operating expense. So I definitely need to ensure that I’m only paying taxes on the 10% and not the whole 100% (as the taxes alone would dwarf my profit).

        Bryan

        • Ski Man says:

          Seems pretty simple to me. Your Gross Revenue is the 100% part. Then you subtract your expenses which is the 90% part. This leaves your Net Income which is the 10%.
          Simple accounting, talk to one.

  123. Ryan says:

    Hello, I’m wondering if you have any tips or advice on moving from a sole prop to incorporating. I have a sole prop and gst number setup already, but my new employment/employer requires I incorporate for liabilty concerns.
    Thanks,
    Ryan

  124. Miss Start Up says:

    Still debating if I need to register my new business (right away). I understand the process/rules and that I do not need to register if making less than $30,000. I will be obtaining an accountant eventually to help out with the numbers side of things.

    However, there are supplies I need to purchase to help the start up process. I am wondering if I should register my business before starting to purchase items (for expense purposes). I need some supplies, should I wait until I register and everything is finalized before purchasing items?

    I guess my question is simple. “Do you need to have a registered business in order to claim business expenses?”

    Thank you in advance for your help!

  125. Poala beals says:

    I have a cleaning business located in Niagara Falls on as a sole prioritship do I need a visa to provide cleaning in the US?
    If the company wants to hire our company to provide cleaning for them?

  126. Kyle says:

    Hi Wes,

    I am in the process of starting a business (sole-proprietorship) in Alberta. Just to clarify what needs to be done:

    1. First of all, I do not need to register as sole-proprietor if I am under my own name, right?
    2. As a sole-proprietor I will need to track all expenses and revenue very carefully – once it is tax time, I will need to file a T2125 and a T1.
    3. If my income grows to $30,000 of gross income within 13 months, then I will need to register for GST (Alberta does not have PST or HST).

    If I follow these three basic steps, will I being doing all that I need to as a sole-proprietor? I am not forgetting anything, am I?

    I suppose I will incorporate my business if all goes well, but until then, should this be enough?

    Thank you kindly.

  127. Becky says:

    OMG…so HAPPY I came upon this blog! Thank you. I am an office assistant and am planning to hire myself out to various offices on a temp basis. I have NO idea how much money I will earn so will refrain from obtaining an HST number for the time being. Of course, if I hire myself out at this time for, say, $25/hr., it will be hard to then add the extra 13% to my invoice in the future when I hit the $30K threshold…but I guess I will cross that bridge when it comes! But, just so I understand…if/when I finally do get an HST number… when I am writing off my 10% home operating expenses on my tax return, I assume I would only be able to write off 10% of the HST spent on my phone bill, internet, cleaning supplies, etc?

    Also…I’m confused about “registering as a sole-proprietor”. If I’m just going to bill my services under my proper name, what exactly am I registering? Don’t I just file my tax return at the end of the year as a self-employed individual? Is there any benefit of having a business name? Can I start off invoicing under my proper name and then, if I want to get fancy, register some catchy business name (but still file my taxes in the same manner as an individual)? PLEASE TELL ME IT’S NOT AS CONFUSING AS IT SEEMS!!! 🙂

  128. d says:

    Hello, I just moved to QB, I am a permanent resident here. In the previous country I lived I was a freelancer, so I want to continue this activity.

    However, I don’t quite understand everything. I will make under 30K/year, but still, there are no rules? It sounds like I don’t have to register anywhere (if I have to, where?), the invoices could be done however I want to, I won’t have a business name, so I will simply use my name and address on the invoices? No need to have a contract with my customers, nothing?

    I only invoice as I wish and next year I complete the T2125 and that’s it?

    I called someone here and they said I can invoice in different currencies as well (for example, euros) but write the exchange rate from that day. Which is not so correct, because usually we are using the exchange date from the previous day.. so that is why I am not sure if all this self emoployment thing is so easy in Canada?…

    Please advice 🙂 where should I go or call.

  129. Elena Patarini says:

    Hello,
    I plan to start a home-based translation sole proprietor business in Newfoundland. Obviously I will not make 30K this year, so I do not have to register for HST and I know I will have to register with the city.
    My question is: my first client is in Italy. Do I charge taxes? If so, how? Accountants here are not helpful, as it is a small provincial reality and nobody seem to do business with Italy.
    Any help is appreciated! Elena

  130. Sam says:

    Hi,

    I have registered two businesses 3 years ago and have not done any work nor I registered or applied for a CRA account, my question is if I don’t need the Business and not used the name, do I Have to do something or it will automatically expire…

    Thanks

  131. Michael says:

    Hi,

    I will be selling products on Ebay.com. I am also just starting out; and I understand that I should not charge HST to Canadians until after exceeding 30K. However, many people will be purchasing internationally, so do I not have to charge them taxes? Or does it make sense to include a HST in my price of the product, to cover my self? Thank you.
    Sincerely,

    Michael

  132. Eugene says:

    How about business bank account vs using personal bank account for sole proprietorship? I’m thinking of initially using my personal bank account instead of opening a new business bank account (to save $ on bank charges). I know legally, you don’t have to open a separate account for sole and the only benefit is for bookkeeping, etc. Any experience on this?

  133. RookW says:

    Hello!
    I stated a business on Etsy December 2014. I work part-time at another job and make under 30K (roughly 20k) at that job but combined with my Etsy business I exceed an income of 30k a year. I am not registered for HST. I have not set aside any money for taxes from my Etsy business.
    I had previously read that all I needed to do on my tax return was to put the amount of income I’m earning on Etsy under ‘other’ for income. This seems to be false. Am I supposed to be doing taxes every quarter? I make about $1300-1500 a month from Etsy (and growing). I don’t want to end up screwed at tax time finding out all this new information.

  134. Kristy says:

    I have been doing a lot of research to figure the whole tax thing out. As a new sole proprietor (Feb 2014) and not making a crazy amount, I had been reading that small business don’t have to charge GST/HST if they are making less than $30,000 in a calendar quarter. which would be $120K/year. Am I just confused? 😛

  135. Tracy says:

    Hi, my name is Tracy and I’m confused about something. Can I have a registered company with a registered number in Ontario but not file business financials with cra since I consider myself a sub contractor. I only have the name registered incase I want to start a company. I do do personal income taxes just don’t claim the company as making an income.

  136. Jay says:

    Hey Wes, I’m a sole proprietor for a Graphic Design business I run myself in the Windsor area… My fiance is pregnant and I’m looking into getting Health Insurance for my growing family. I read that you used a broker to help you find the best deal for health insurance. Who did you use? Or where can I find a broker to get the best and/or cheapest Health Insurance for me and my family?

  137. Courtney says:

    Hi there,

    Great article, hoping you can help me too!
    I have an online store, and I want to register it in Canada, but it caters to the United States, Europe and Canada. I also work mostly with drop shipping, so I never see the product, it just ships right from my supplier to my customer. What should I do? I know that in the United States they register for a re sale tax except, do we have that in Canada? My main product is SUP boards, so for the people who I sell to in Ontario should I just charge them the same and eat the tax I have to pay at the end, each board is around 900 dollar?

    Or should I not register my business, I am also currently in Spain so can I claim internationally? I am thinking, maybe its best not to register until I have made over 30,000?

    Thanks,
    Courtney.

  138. Hey, I just wanted to say thanks for making this post. I found it on Google.

  139. JeffreyH says:

    Question: do I need to be registered for an HST # in order to claim back HST paid out? And I have been told that I can claim back HST for every single thing I’ve purchased (even not business related); is this true? Thanks.

    • wesbos says:

      Yes, you must have an HST number to claim back HST you paid out. For example I can claim back HST I paid on a laptop because I also collect HST.

      And no – you can’t get HST back for personal expenses – that wouldn’t make sense. If it’s not for your business, it’s not a business expense.

  140. Todd says:

    What a great thread! Thank you!

    2 questions:
    1) I have a full time job making $70k/yr. I also have a very small sole proprietor biz making $10k/yr right now. Taxes scare me. Is it worth incorporating? My wife stays at home with our young children.
    2) My business doesn’t really begin until the snow melts, therefore, i don’t start to get business income until April or May. Can i still claim expenses for the entire year?

    Thanks

    • wesbos says:

      1) I’m not sure if it’s worth it at 10k because the savings would be minimal, but the fact that your wife stays at home is a great opportunity to have her own part of the business and pay out dividends to her.

      2) Yep – there are many seasonal businesses that take a loss during down months. That is just part of the business and the government can’t fault you for losing money in those months.

  141. Rob says:

    Great Post! Just the information that I was looking for

  142. Dee_l says:

    Hi – I registered for an Ontario Business Certificate and thought that by adding RT 0001 at the end of that number that was the same as HST (CRA) number.
    I used that number to charge HST on about $6K worth of services. 1) I did not hit the $30K threshold in 2016 and (2) I used the wrong number for HST purpose. I am now going to register for an HST number going forward in 2016. Question: can I reimburse the client for the HST that I should not have charged them? Or do I send the collected HST to CRA? (and how do I do that…using the new number I will get or just by way of a letter explaining my mixup)

  143. Ritzy says:

    Hi Wes !! I have registered a sole proprietorship company in Toronto and working as an contract employee with 26 K yearly package .I want to know that still have to pay 30% taxes from my yearly package if yes then how to handle the taxes part.
    or below 30 K are not laible to pay any taxes ..Please help !!

  144. Igor says:

    Hello !
    Great post, thanks a lot!
    I have a question to 🙂
    I am new in Toronto and started working independently from Jan this year (2016)

    I am working for a tv company and they pay me by a fixed amount by cheque every month. So far it was the first cheque and I just gave than an Invoice (free form made in MS Word ) so do I have to take 13% from the amount and put it on the side ?
    Didn’t register anything so far.

    Do I need to Register an HST now or should I wait for a while and register it afterwards ?

    As well as if I register an HST do I have to open a business bank account or can I just use mine?

    Really new to all that and have a mess in my head :/

  145. Helen says:

    Hi Wes – Great article. My husband runs a side sole proprietor business and is HST registered making between 5 and 10K gross. Early last year we had some large expenses for equipment but due to unforseen circumstance did not take in much business / income. Therefore our HST paid out was higher than our HST collected. This is a first for us. We do have an accountant we will talk to but do you know how it will work for filing our HST? Can we hold onto some of last years expenses and claim them this year to reduce this years HST collected. Thanks for any info.

  146. Webblogs says:

    WES,

    Very nice and informative post. Thanks for sharing!

    I came up with very complicated question, but I know you will answer me.

    I am doing small business of I.T services for years outside of Canada, I want to expand my business in Canada, I searched over internet and found many clues but all of these I could’t get what I required. So I want you to fill me up with following questions.

    1, How do I register? as a corporate or sole proprietorship/Partnership (I have known person in Ontario who will be partner)
    2, Do I need to register HST (I am not sure what my income will be?)

    Thanks in advance.

  147. josh says:

    I’m just wondering as far as expenses go can you claim them to bring down your full time income from another job? I currently have a full time job and am also self employed. If my income was lower from my self employment income than my expenses for my self employment would they go against and bring down my taxable income for my full time employment?

  148. Jenny says:

    Great blob Wes.

    My husband has a small contracting business…in which he passes on the “supplies” at his cost… doesn’t make any money from it.. only makes money on his labour. He shows material and labour on the invoice, and then a combined total.
    If he counts only his labour, he is below the 30,000 mark, however if he had to count the whole invoice, he would be over.

    He thinks he is fine just to show the labour, as he didn’t make money from the supplies.

    Is he correct?

    • wesbos says:

      No – you can’t do this. You are describing business expenses and it counts towards your total. He can claim the supplies as an expense and won’t be taxed on that amount but you still need to be charging HST after 30k in sales. Even better is that he will be able to claim that HST spent on supplies and get it back

  149. Tim Tyz says:

    Hi Wesbos!
    Thank you for the great article.
    I’ve just finished my first year as a corporation, and plan on paying myself a salary starting this new business year. What do I need to know to maximize my non-taxable income. (Please note I am in Alberta)
    I’ve heard I do not need to pay EI/UI, do you have any recommendations on things I need to pay VS things I need not pay?

  150. Phil says:

    Great post – I’m a new free-lance here in NY and was wondering at just what point, whether it’s a yearly dollar amount or being in charge of x – amount of people that you should make the jump to LLC? In my line of work (mostly head shots) and the occasional wedding (mostly assisting) I don’t really see or come across instances of being at risk of being sued (which is what I gather the main benefit of an LLC is) I do currently have a lot of write-offs from online services to you name it. Am I better off just staying sole-proprietor for the time being? Thanks!

    • wesbos says:

      It really depends on how much you’re making and since you’re in the US I don’t totally know I’d say in Canada it’s about $80,000 but your best to consult with an accountant in your area. It’s worth looking into since you could save a significant amount of money on taxes

  151. Josy says:

    Hi Wes, I went through all the posts and didn’t find my question, so here it is. I am buying a commercial building and am being advised to get an HST number so that the seller does not have to charge me HST on the building. There will be tenants on the 2nd floor and I will have retail on the ground floor. Will I have to charge my tenants HST as part of my “business”? My agent seems to think the answer is yes, but that seems weird. I also have tenants in another building and there is no way I can start charging them HST as well…
    Thanks for any insight!

  152. jr says:

    As a Canadian thank you for this.

  153. Igor says:

    Hello !
    Great post, thanks a lot!
    I have a question to 
    I am new in Toronto and started working independently from Jan this year (2016)

    I am working for a tv company and they pay me by a fixed amount by cheque every month. So far it was the first cheque and I just gave than an Invoice (free form made in MS Word ) so do I have to take 13% from the amount and put it on the side ?
    Didn’t register anything so far.

    Do I need to Register an HST now or should I wait for a while and register it afterwards ?

    As well as if I register an HST do I have to open a business bank account or can I just use mine?

    Really new to all that and have a mess in my head :/

  154. Mohamed says:

    Hello,
    Thank you for a very useful post and excellent pointers!
    My question is about the incorporation phase: did you end up incorporating provincially or federally? Care to share some of the thought process as to why one vs the other? Do your clients care?
    I am contemplating incorporating a small IT consultancy. I’m based in ON, but -hopefully- my clients will not be limited to the province. I wonder if it’s OK to just incorporate provincially (in ON) and still be able to do serve and bill clients in other provinces hassle-free? Or would I have to “register” in every province I plan to have a client in? If it’s the latter, I guess incorporating federally (rather than provincially) would make more sense…

    • wesbos says:

      Good question. I did it provincially but I don’t really understand the differences between provincially and federally reason I did it because I primarily do my business in Ontario

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  156. Kay says:

    Hello Wes,

    This is a helpful post, thanks. I just registered for a HST account. Can you point me to where I can read up things that I can expense under my sole proprietor business? I want to find answers to questions such as if I buy a book that helps in my business, can I expense it, etc. Thank you!

  157. Bill says:

    Hi Wes, great site!
    I am currently a sole proprietor, however, strongly considering incorporating myself to protect my liability. I will never have employees, and my wife is unemployed. My annual revenue is $55,000. I have seen a number of sites that suggest incorporating actually allows income splitting by paying dividends to my wife, which seems odd, if I am doing all of the work for the business. Is this really legal? And is incorporating a bad idea at the $55,000 level, or do you have to be earning 6 figures to make it worthwhile? (I have minimal to no expenses) Thanks!

    • wesbos says:

      Totally legal, this is what I do with my wife. I’d say it’s worth it and then work on increasing the revenue

      • Bill says:

        I came across some sites speaking of Personal Services Corporation “PSB” that quite honesty scare me. In my current situation, I could definitely see the CRA saying that I am really acting as an employee, as I only work for the 1 company right now, and they have actually expanded their demands to the extent that what was originally going to be 20hrs/wk grew to 40hrs/wk, so I really could not say that I have the time to find more customers. I also use their equipment, as they need data input into their systems (they don’t want outside equipment that could cause problems). Down the road, I am hoping to find a way to work out of my home, but I am not sure they are willing to allow this. Have you come across the PSB issue, and if so, do you have any advice?

  158. Karl says:

    Great posts, answered many of the questions I had.

  159. Christine Pickering says:

    I just started a cleaning company 5 months ago. My business is not registered and i have received only cash pymts from my clients so far. I do not charge hst as im below 30,000. My question is that i have inquiries about if i provide receipts. If i give a receipt but there not paying hst do i have to claim it and/or register my business? What if they pay by cheque then I have to register to cash my cheques! Just want to do everything legit and not be slammed year end.

  160. Steve Wilson says:

    Just wanted to drop a note regarding HST and US Income. I run a small Canadian consulting firm. My clients are exclusively Canadian provinces or US State governments. All of them are exempt from HST. HOwever I pay HST on almost everything I need to perform my services. (I generate reports from my work-at-home office and transmit them electronically to my clients). Every year my account files an HST return – since I collect none I get a healthy reimbursement of all the HST I paid in the year to generate income, including the portion of work-at-home expenses I paid GST on.

    In regard to the W8BEN – before I engage with a US client I send them a completed W8BEN form that basically avoids any withholding tax that would otherwise be remitted to the IRS. Since all the work is conducted in Canada, by a Canadian firm and is not “effectively connected with services performed in the US, a section of the Tax Treaty between the US and Canada allows me to pay income tax only to CRA on US income.

    You can declare your US income using either the exchange rate on the date of deposit or use a Bank of Canada harmonized rate for the tax year.

    One not on this however is you should still apply to the US IRS for a Federal Employer Identification Number FEIN – they have a section in Philadelphia that handles providing FEIN to foreign entities. You will need the FEIN to properly complete the W8BEN. When I applied for the FEIN I stated that I would be providing reports electronically to US clients. They sent the FEIN to my Canadian business address.

    If you can find a way to engage US clients without having to set foot in the US (I.e. web design, blogging, authoring etc.) it is a great way to broaden your customer base without needing a US work visa.

    • Lisa says:

      Are you a freelancer working on a contract basis? I have recently been hired by a US company as such, and have been wondering if I need to send them this form and apply to the US IRS for a FEIN. My accountant is unsure on this as well, and searching on the web is not really providing me with any answers. Thanks!

  161. Lorraine Johnston says:

    Thanks for this great article.

    I started a sole proprietorship transcription business a few months ago and was advise to apply for HST # which I did.

    Todate, I have not had any sales.

    Q1: Should I still send in my Input Sales Tax even though I have no sales?
    Q2: Can I cancel my HST obligation seeing I’m not making $30K/yr.?

  162. Paul says:

    Great post. I’m in the process of starting my own online animation and design company in Ontario. I also work full-time for a company in Toronto making close to six figures. My projected sales for the first year will be around $175,000. My question is, should I start charging Canadian customers the appropriate taxes based on their province right away or do I have to wait until I hit the $30,000 mark and then adjust my pricing to include taxes? Another question I have is, should I incorporate my business right away or just have at as a sole propriatorship?

  163. Jeff says:

    Can you back date the registration of your sole prop? is that even needed? ie. does it make a difference?

  164. Shawn says:

    Recently started my own incorporated mechanic business. Only make $ off the labour and have had to use all the $ I’m making to pay my expenses, not enough $ yet to pay myself. An accountant told me to hold back $ each month for hst, CPP and income taxes which I have been. If I don’t pay myself this year do I still have to keep saving CPP and Income Tax money aside each month?

    • wesbos says:

      You should talk to that account to clarify what he said. You should only pay CPP and income tax on salary that you pay yourself so maybe not but don’t take my word for it

  165. Josie Alvero says:

    I just read the thread on this topic, truly informative. I have a sole proprietorship business. I do not have a payroll account but I paid my husband as he is my helper in the cleaning business. I did not issue T4, but claimed this as business expense. He declared the income in his tax return as other income without any T4. Will we be questioned by CRA?

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  168. John says:

    I’m running small sol prop. Question: I have a helper(retiree) on monthly basis whom I pay with cheque. How do I claim that expense?

  169. I agree about not using H & R Block. Although they seemed to do a good job, I realized I could do the same for about $100 less i.e. $18.02 with u-file vs. $120. I started to work from home last year and have not registered my web business yet. Can I claim the costs incurred to set it up?

  170. Johnny Young says:

    Hi Wes, Very informative site. Thanks for doing this.
    I have a possible job on the pipe line working for a US based company. Maybe a week travel each month to US and then rest of the time in work from home in Canada. Part of the pay will be W2 and rest on 1099 (no idea what are they). Do I need to fill up the W9 and W4 paper? I am thinking start a sole proprietor. Will that be good or go for a incorporated? Appreciate your expert opinion. I am in Ontario. thanks a million.

  171. Klaude says:

    Hi Wes,
    Great post! I will start consulting work for a company based in Sweden. Is this the same principle as doing business with the US? No tax on the invoices I send them for my consulting work??

    Thanks in advance for your reply ;D
    Klaude

  172. Mike says:

    Quick question.
    If I register as a sole proprietor here in Toronto Ontario with a company name that may possibly be used in the USA.
    Can I get sued with using a name even if i am not affiliated to them in any way or doing business within the USA?

    By the end of this year then incorporating. Will that raise conflict?
    Or does BUSINESS laws differ from Canada to our brother USA.

    I am looking for a very definitive solid answer. I can not afford a small business lawyer at the moment. If any form of link to the information would be helpful. I have also contacted ESC they were unable to give everyone me a solid definitive answer either. Great read! By the way.

    Will definitely get an accountant and lawyer asap. Or even a link to contact an American line so there is no conflict of interest in a scare of starting a venture before even pursuing it with fear of being served or sued.

  173. Bob says:

    Hi there,

    question about registering an HST number. I currently work for a company in Ontario and make over 30K a year, and have also just gotten asked to do a bit of free lance work on the side. Because I am already making over 30K a year at my current employment, do I automatically have to charge HST, or does that that only apply to my freelance income?
    Meaning, can I not charge HST on my first 30,000 of FREELANCE work, and then start charging afterwards? Or because I make over 30,000 already at my day job, do I have to charge HST automatically. Thanks

  174. Jonathon Enos says:

    Hi Wes,
    Great advice from you on this blog

    I am a sole proprietor making less than 30K a year but thinking of registering for hst number as I’ve made a few large purchases this year for my business. Can I wait til the end of the year to get my hst number but still get all the hst back I’ve paid in the past year? Or can I only get back the hst spent after registering?

  175. Alessio Batista says:

    Only one small comment on the RRSP availability. There is something called self direct mortgage, in which you may cash all your RRSPs to use to buy a rental property, solar panels or even apply to renovate your home. You must pat “yourself back” using the same rules of a regular mortgage and the interest paid on the principal is yours, instead the bank.
    I recently bought a rental property, that I am taking ownership next month and it is not clear to me how it will play out. Right now the owner charges HST from the 2300 rent, but he owns many properties. In my case, the rental will generate $27600, below the 30k mark, so I cannot charge my tenant HST? And what if I buy another rental, bringing the income to over 30k, should I resume charging my tenant HST? Tks and appreciate any help.

  176. James Cho says:

    After registering sole proprietorship, do I need to use my business name on all the jobs I work on? Even if it’s overseas job(which is 90% of my business)?

  177. I run a small business and these tips are going to help me out. I don’t think about my financials as much as I should. I like the tip to not allowing clients to get away with not paying us. I need to do much better at keeping them honest and helping us get paid. Thanks

  178. raj says:

    I own a corporation in ontario. i was self employed for 3 years until end of 2014 during which i worked as software consultant for a company in ontario. I earned on an average about 7000$ /month of which i paid myself 3000$.
    All taxes for company and my salary was duly paid during the time.
    My company is inactive since 2015 and i wanted to close it.
    Do i need to pay taxes if i need to close my corporation.? If so roughly how much?

  179. Rafi says:

    Hi Wes, I recently began freelancing as a web designer and I’ll be taking your Javascript courses at HY this fall. Can I claim a deduct the course fees as a professional development business expense? What I read here seems to indicate yes, but I figured I’d ask you too. http://www.accountingtroubleshooters.com/professionaldevelopmentcoursestaxdeductibility.html

  180. David says:

    I have just started my business and have registered as a sole proprietorship. I am wondering, because I have not made any money through my business but still hold a full time job will I have to pay additional tax on my employment income and should I register for my HST number?

  181. Erika says:

    Hello,

    If you are a small hobby business and only doing cash sales does a journal log book count for a receipt? Or just getting a receipt book?

  182. Gabrielle says:

    Hi Wes, we currently hiring a marketing representative in Ontario as contractor. We are in Australia. Does the contractor need to charge GST/HST to us considering the service is in Canada but the invoice is sent to Australia? Also, the contractor sending us invoices based of hours worked. In Australia Sole traders have to mention their business number on their invoices. Is it the same in Ontario? Thanks

  183. Mark says:

    Great website! And thanks for all the free info. I have a question that I can’t seem to find an answer to. I’m GST/HST registered and film weddings as well as freelance video edit. I’ve read up on the place of sale rules but need clarification on something. If I have a client from the states who comes up to Canada to get married and I film their wedding here, do I charge HST? Their address on the invoice will be their home in the US and I know that if they were in the states for the service it would be HST free, but with them physically coming up to Canada for the wedding I’m not so sure. Thanks for your help!

  184. Tsering says:

    Hi Wesbos,
    I am a IT consultant -always worked as employee till today. I now have a contract of 3 months opportunity(Nov 2016,Dec 2016 and JAN 2017) as sole proprietorship.My hourly rate is 95$ per hour .Number of hours worked in each month differs ,hence my monthly earned income amount varies.Below is my monthly income
    November income =12920
    December income=15960
    Jan income=16720

    Total income=45600

    My question #1 is -can you confirm that i have to pay sole propriertor income tax rate of 12.65% (federal=9.4 Plus provision=3.61).Note the tax rate is in the province of Alberta.Since my annual taxable income =28880 (after deduction of all expenses)
    Therefore,
    12.65% of 28880(JAN 2016 income is excluded as this will be part of 2017 Fiscal year ) =3654

    ——————————————————————————————————-

    For the same contract of 3 months opportunity above, I have an option to be an employee.

    My question #2 is If I go as employee,my personal income tax rate is 31.41%((federal=21.65 Plus provision=9.8))since my annual taxable income =182400 (monthly income 15200 x 12 months).

    Therefore,
    31.4% of 28880(JAN 2016 income is excluded as this will be part of 2017 Fiscal year ) =9071

    My understanding is personal income tax rate calculation is based on the annual taxable income amount even though you work for few months as employee.Is this correct? Please confirm.

    Conclusion =I have tax saving of $5417 if I go as sole proprietor( 971 minus 3654)
    Is this logic correct?

  185. Av says:

    Hi,

    I just have a quick question. I am both a full time employee (not my company) and registered as a sole prop for side jobs. my employer salary is over $30,000 but my sole proprietor business sales are less then $30,000. Am I legally obligated to register for HST (is employment salary combined with sole prop sales?) or is my employment salary treated separate from my sole prop sales?

  186. Abdel loukan says:

    Hi Wes,

    Awesome website!

    Question regarding HST.

    I will start a website soon to sell products through the drop shipping method.
    The customer’s payments will go mostly to the suppliers and the rest will go towards me. Basically I have to pay the suppliers after I receive the customer’s payments.
    How do i calculate the 30.000 limit? Is that the the whole amount that customers are paying, or my piece of income after paying the supplier?

  187. Debbie says:

    Hi Wess…. great blog and I could not have found it at a better time!
    My boyfriend and I have put in a proposal for a contract with a large company. The income potential is quite sweet. If we get the contract, the plan is for him to do the labour and I will run the business. That said, of course our goal is to set the business up so that we can actually keep as much money in our pockets as possible! If I register a business, can he be a sub contractor? I do not want to get involved with payroll and deductions. Is this possible in a sole proprietorship and a corporation? Or would it benefit both of us to register an incorporated company together? So confused! Lol.

    Thank you,
    Debbie

  188. Kevin B says:

    How about explaining the basics for a complete newbie?

    You set up a sole proprietorship, get your first consulting gig, and prepare your first invoice.

    They ask for a HST/GST number which you successfully get, and add to the invoice.

    So let’s say the amount of the invoice is for $2000.

    I am assuming you add the 13% (in Ontario)to the invoice, and come up with a total of $2260.

    But then what happens past that point? I am assuming you get the $260 when the invoice is paid and then you pay it back eventually to the government. I believe there is an option where you can set up the HST on quarterly basis, but not sure exactly what this means. As I best understand it, you then get access to seeing your HST balance on an CRA account, and then you pay the government the amount owing as per the information/instructions on the CRA account. Is it that simple?

    Can you confirm the process of what to expect when you are first starting out, your first invoice, the first time the quarter comes up, the first time you pay HST, etc?

  189. Singh says:

    Hello! Great Blog. I am still slightly confused. If I am a consultant working on contract for an organization at an hourly rate (US company or Canada) – what would be the best choice – sole or incorporation? I would be expecting to work full-time hours at a rate of $100/hour. There would be no real purchase for me and anything such as business trips would be paid by the company? What should i do?

  190. Nathalie Le Maire says:

    HI Wes! I am going to be going the sole proprietor route and understand i don’t need to do this since i’m in QUebec, right now i just started so i haven’t even made any money yet,i need to know that since i’m not even close to the 30k/yr yet, do i need a gst number? if so, how or where do i go to get one? Many thanks to you for posting this blog, it’s given me allot of information without the overload that the gov’t sites do lol

  191. Jerry Zelle says:

    Iam exiting a sole proprietorship as a visual artist in Ontario. other than the forms required for my business number from an accounting end what do I need to do. Thks

  192. D. says:

    Hey:
    I’m operating a sole proprietorship in BC and do off shore work only. Can I claim travel / meal expenses if I just claim the income on my Income taxes?

  193. Jerry Zelle says:

    I am a sole proprietor as a visual artist. I have used the CAA to write off computer used for the business. I am thinking about ending my business and was wandering if I have to do any special accounting for the computer that I have been writing off.

  194. Adam says:

    Great article! Thank you very much. I would like to read more information if you have any regarding steps to take and avoid while starting a business in Ontario.

  195. Mohamed says:

    Hi Wes,
    I keep coming back to your post and the comments, so Thanks again.
    My question is about the corporate income taxes on foreign income. I am hoping to sell my web services to clients in the US, and it seems that even though the company doesn’t have to pay provincial income taxes on the foreign income, the federal rate on that will go up (from 10.5% for a CCPC) to a whopping 25%! If my understanding is correct, then obviously this will suck.
    I just wanted to see if you knew anything about that..

    Thank you.

  196. Christine says:

    If I register my business name in Ontario in December (just in case anyone takes the name and I have to come up with something else) but didnt have any profit or make any sales because I’m still dealing with the papaerwork stuff, do I need to do taxes in 2017? What are the requirements for filing taxes in this case? I know I don’t need to register for GST/HST account or any of the oher programs as they don’t apply to me yet.

    Thanks
    Christine

  197. AL says:

    Question about HST:
    If I run a sole proprietor business and have $20,000 in revenues and my wife has her own business and brings in $20,000 in revenues, do we need an HST number as cumulative revenues in our household are over $30,0000? Are there guidelines for when to consider separate businesses as “merged” for HST purposes for spouses?
    ex. what if it’s the same business – wife sells widgets to her clients, I sell same widgets to my clients….

    NOTE: From a customer relations standpoint it is not beneficial for us to charge HST to our clients unless absolutely necessary.

  198. Andre McIntosh says:

    Hi Wes,
    Thank you for providing this wealth of information for us we really appreciate it. My question is i already have a business incorporated but i now want to do an “operating as” that doesn’t really have anything to do with my original business..is that possible or do i have to pay again to incorporate my new business name.

    Andre.

  199. Geoff says:

    Hello, and thank you for taking the time to post this very useful article and for continuing to answer questions.

    I am considering starting a side business just for extra income. I’m currently fully employed. My question pertains to purchasing items for my business. Just because money is tight, I am looking at purchasing used items from private individuals (like off Kijiji and such). If I’m purchasing from a private individual, how would I expense any such items without an official receipt? Or, is it acceptable to provide a hand-written receipt? The used items I’m looking at purchasing would be items used to operate the business and not supplies.

    Thank you for any insight you can provide.

  200. John says:

    I have a corporation for more than 5 years. But is kind of expensive paying around $3500 to an account every year to do my taxes at the end , plus t4’s and income tax. Now my bracket sales are around 160,000 but after expenses out i am left with a very little money, which in this case stays as profit and pay taxes to the government for the profit i make. I am getting a bit frustrated because i have to input all my receipts on quick books peace by piece with all detailed information, it is a lot of work hours. So i am thinking asking my accounter to close my corporation and just do solo, that way i only do my hst every 3 months, at the end of the year is only to add the numbers form there, I guess!
    But my accounter tells me i am better like this because the tax bracket is less than if i get my salary and profit as solo, and other situation is the liability, witch if something goes wrong is very hard for anyone to get into my personnel assets, but not totally safe, i think there’s some situations they can go after you even if is a corporation!…
    But my concern is paying so much to the accounter and the paperwork that i have to do, because i choose that way to save money. Is that worth to cancel my corporation? I actually have a good record with the goverment, since i pay everything on time and have all my account in good standing worder.
    Thanks
    J.

  201. Imtiyaz Ali says:

    Hello Sir,
    This is very nice page to help small businessmen. Thanks for this blog.
    I am new sole prop. My business sales this year was $5000.I had voluntary opted for GST/HST registration to get my business number and import code before because I imported some small stuff from India like scarves, shawls on which GST/HST was collected during import at airport through a broker, which is nearly $350. I was in CNE 2016 but I collected HST from clients which is around $400 but I did not collected it from all clients i.e. for sale of $5000. Now I have 2 questions:-
    1- Do I still to have to pay/Show HST 13% ($645) on full amount of $5000 or only how much I really collected i.e $400 in the CNE Exhibition. (keeping in consideration my full year sales is only $5000).
    2- I spend amount for CNE registration ($3000), transport, import, meals, equipment (laptop & DSLR $1350) which is much more above than the total sales of the year (i.e $5000). Do I need to pay the GST/HST collected to CRA first and then I claim refund for the GST/HST paid by me on above mentioned things?
    Thanks

  202. Tato says:

    Hey thanks for your time here 🙂

    I have a couple of questions:

    If I crack the 30K threshhold, can I use RRSP contributions to lower my taxable income and thereby pull myself back under the 30K threshold for HST registration?

    If my self-employment income is under 30K, but my total income included self-employment and employed income is greater than 30K, do I need to start collecting HST?

    Thanks so much!

  203. Alex says:

    Hi Wes,
    I have a ‘day job’ with which I am a salaried employee. I am starting a business in my spare time. If I earn say $5000 from my business (sole proprietorship), but $75000 from my salary, am I considered a small supplier or does the salary from my job count towards breaking the $30k limit?

    Thank you very much!

  204. Amy Zwaigenbaum says:

    Hi Wes,
    I registered for an Ontario HST number and did not receive it. How can I get this information and who do I contact to get it?
    Thank you,
    Amy

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  206. Rosa Hern says:

    Hello Wes,
    I am a sub-contractor working on janitorial business.I registered my sole proprietorship and got a Gst/Hst registration # 3 years ago.
    Last year I lost my contract and my registered company didn’t get any income.But i was doing other jobs
    related to the same business and did not collect any Ghs/Hst. The checks were addressed to my name instead of
    my registered company name.
    Do I have to pay Gst/ Hst on
    the money I received on my name only? Or can I file a Gst/Hst saying that I got 0 (cero) dollars on the registered company. And declare my income just on my regular taxes.It was about 7k. Can I file two different T2125 One from my registered company and one from my no-registered one?

  207. Rosa Hern says:

    Thank you

  208. Tom Walker says:

    Not sure if anyone has brought it up yet in the comments, but don’t overlook housing costs. If you have a home office you can expense a percentage of your mortgage interest, strata fees, electricity, water, gas… check with your accountant about the percentages – if you claim too high a percentage of your home for your “office space” you could be subject to capital gains when you sell. Can only claim rooms that are exclusively for office use – no mixed use (eg. If your office is in a corner of the kitchen, you can only claim that corner – not the entire kitchen).

  209. Sarah says:

    Thanks for the info, my husband just registered for an HST number yesterday because he started working piece work for drywall installation. So as of now he will be charging HST on all jobs, but when I read in your blog that when you do that you don’t have to pay HST on things you buy how does that work? at the end of the year when he’s calculating all expenses would he add up the HST on those expenses as well and claim that back?

  210. Jane says:

    Good information. Thank you.

  211. darcy says:

    Hi Wes,
    Thank you for your blog and sage advise. I have a couple of questions if you feel inspired to answer. My husband and I own a small business which was incorporated in the province we previously lived in. It was suggested to us by our lawyer that when we move we just operate as a sole prop. as our income was quite low…sigh. We have since moved to another province and are considering whether or not we should be a sole proprietor or partnership? And what would be the pros of cons of one over the other. I.e; If my husband is the only name on the sole prop. am I legally responsible for any debts that may occur? Another question; would it be better tax wise if we formed a partnership because of income splitting, etc. ? Any advise would be greatly appreciated.

    • Brian says:

      Partnership and sole prop are the same thing in that each individual owner is responsible for the debt of the organization. This isn’t the same as a corporation because if you are sued as a corporation, only corporate assets can be seized, not personal. Only if there is negligence could personal assets be seized in a lawsuit against a corporation.

      In a partnership or sole prop, your personal assets could be seized if you are sued.

      The major difference between partnership and sole prop is that in a partnership, any partner is liable for the others problems. Other than that they pretty much function the same.

      If your husband is the only name on the sole prop, he would be liable for debts that occur, and only him. However, because you’re married, your personal assets could be seized from any lawsuit that may occur.

      Income splitting is generally only used when one spouse makes much less than the other. With any type of organization you can do income splitting. The way to perform income splitting is slightly different across organization types though.

  212. Jake says:

    Can you use a sole proprietorship master business licence in Ontario to run multiple businesses and save taxes through deductions for both?

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