“Dang, I’ve lost my job due to COVID!” So, what do you do? Do what you’ve already been doing: run a business, a swanky business—one in your own name.
You Can start Your Business This Minute
In fact, you’ve already got one set up. Yes, just by the fact that you’ve got a birth name means you’ve got everything you need to start a business—now. That’s if your business is a proprietorship named exactly and only after your first and last name: say, Marie Well (but not Marie Well Consulting). Better still, you will only need to file one tax return—your personal income tax. Easy, hey?
When Can’t You Run Your Business Right Now?
Under certain circumstances, you will need to register your business. “You should register for a business number and specific business accounts with the CRA when your business is:
Hiring and paying employees on your payroll account,
Exceeding $30,000K in sales in the last four quarters (and [thus] needs to start collecting GST/HST sales taxes),
Importing exporting goods into Canada” (https://baranovcpa.ca/sole-proprietorship-ecommerce/).
Another delay occurs when you want to name your business after something other than your birth name. If so, you’ll have to register a trade name. It’s cheap to do. So, no stress there, either.
Here’s What You Don’t Need to Worry About:
You’re ready to start your sole proprietorship right now if you (1) name it exactly as your birth name (i.e., “John Smith” and not “John Smith Consulting”), (2) earn under $30,000 a year, (3) don’t have employees, and (4) don’t import or export goods.
I’ve already been running a business. I just didn’t know it. What business might you launch this minute? Have fun coming up with your big-bang business idea.
How Much Will You Pay in Taxes?
Here’s the tax scale in Ontario, Canada:
“$8,044 in tax on the first $40,120 earned (20% tax rate)
$9,242 in tax on the next $30,531 earned (30% tax rate)
$6,063 in tax on the next $17,256 earned (35% tax rate)
After you’ve earned over $90k you’re looking at approximately 40%-50% tax on each additional dollar earned” (https://youngandthrifty.ca/sole-proprietorship-to-corporation-in-canada/). Other provinces have different rates.
Up to 50% Tax? Maybe it pays to stay small. But I see marketing agencies hiring lots of employees while growing revenue. You make the calls now, Boss! Will you one day go big or stay conveniently small?
How Much Will My Accounting Firm Ding Me? Not that much!
If you earn under 500 dollars for the year, it’s classified as other income, and thus not charged by an accounting firm as a business, says my tax consultant. But once you earn more than $500, you are charged by your accounting firm as a business.
But no need to worry. Accounting fees don’t add up to much if you’re a proprietorship:
“You would be looking at accounting fees ranging from $200 – $500 CAD + GST/HST depending on the accountant you work with and the complexity of the tax return” (https://baranovcpa.ca/sole-proprietorship-ecommerce/).
I can live with that!
You Can Deduct Expenses as a Sole Proprietor
“If you are self-employed [as a sole proprietor], a business owner or a partner in a partnership, you can deduct your home office expenses if you meet one of the following two conditions:
Your home office is your principal place of business, or
The workspace is used only to earn business income, and you use it on a regular and ongoing basis to meet clients, customers, or patients” (https://www.mileiq.com/en-ca/blog/home-office-tax-deduction-2018-canada-all-you-need-to-know/).
You can write off a portion of your heat, electricity, and property taxes, for instance. Who doesn’t want to shave off some fat from a hefty property tax?
What Are the Risks? And What Can You Do About Them?
As with anything golden, there is a downside. As a proprietorship, you could be personally liable for any lawsuits or unpaid loans.
So, be careful if you have anything that could cause harm, such as heavy sound systems for your DJ business. If so, you might want to incorporate. That way, if anyone trips and falls, your company, and not you, will be liable if sued, says Steve Mariotti (2014). But incorporating costs money. Plus, a corporation’s tax preparation can be costly.
But, if you start off as a sole proprietorship, you can always incorporate later.
Disclaimer: Although I write with the best of intentions, I’m neither a lawyer nor an accountant. So, you’ll want to double check whether my facts apply to your specific circumstances and to your province. Provinces will vary in their terms.