When its time to move from the simple straight forward world of being an employee to the sometimes-overwhelming world of owning your own business, there is no shortage of resources and information to help. Deciphering these resourcing, making your own decisions and acting is a different thing all together. As a new business owner there are five essential elements to important to ignore.  

  1. Incorporation vs Sole Proprietorship?

If you type into google, ‘How do I start my own business?’ one of the first items to come up is likely to be surrounding incorporating vs sole proprietorship. When you incorporate your business, you are setting up a separate legal entity, when you open a sole proprietorship your business is attached to you and it not legally or financially distinct.

In order to consider which structure makes the most sense here are some things to consider:

  • A corporation is more complex both to set-up & then to maintain. You will likely need to speak to a lawyer and work with a qualified accountant yearly. This costs more in both time and money and maybe a significant commitment for a new business with a little over zero in the revenue department.
  • A corporation has limited liability, this means your personal assets are protected in the event your business attracts litigation.
  • While a corporation does have some advantages when it comes to tax planning, these advantages are often not realized until your business is generating a sold profit.

2. Register your business name:

If your business name is not your name, then you will need to register it in the provinces you do business. A name such as “Anthea Austin” does not require registering, but any additional words or phrases attached does, for example you would need to register ‘Anthea Austin CPA’.

If you are in BC visit the names registry service https://www.bcregistry.ca/namerequest.

3. Set up a business bank account:

Now you have a business structure and a business name its time to open your own business bank account. Having your business transactions separate form your personal transactions make managing your finances much easier. Use this account to be paid into, and use it exclusively to pay expenses from including when you pay yourself. Some business owners also benefit from having a credit card specifically for business use.

4. Keep track of business expenses:

A business expenses is something that is required in order to generate business income, this could include advertising, website expenses, office expenses ect. If you are unsure what constitutes a business expense ask yourself these two questions:

  1. Would I be purchasing this item if I didn’t have my business? If no, then it’s likely the expenses is incurred in order to generate business income and therefore constitutes a legitimate business expenses.
  2. Is this expense reasonable and necessary? The CRA have guidelines to ensure business expenses are legitimate. All expenses must be justifiable as reasonable and necessary!
  3. Does the expense generate a significant personal benefit? Some items such as clothes, travel and meals and entertainment can seem like business expenses on the surface. However, these items or often considered personal in nature and can not always be included as business expenditure.

5. Register for GST and other applicable sales taxes.

Do you need to register for GST? Or are there any other sales taxes your business sales will attract?

  1. Are you selling taxable goods or services? The first thing to keep in mind is the type of product or service that you are selling, each product is categorized differently under the federal system and the provincial system. Federally they will fall into either taxable supply, exempt supply or zero-rated supply. https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022/general-information-gst-hst-registrants.html
  1. Where is the place of supply? The second thing you need to determine is the place of supply. Most products and services are taxed based on your customers location. For example, if you are a selling a taxable supply and are located in BC with a customer in Ontario you will need to charge the Ontario rate of Sales Tax.

For more information on GST, HST and PST see https://www.clearmarginconsulting.com/2021/10/17/episode-2-when-do-i-need-to-charge-gst

Have more financial questions? Tune in weekly to Financial Conversations the podcast at www.financialconversations.com, Spotify or Apple Podcasts.