Odds Are Good For Starting Your Own Business

Thinking of making a big change in your career path?  Maybe it’s time to take control and be your own boss? 

Today there are millions of small businesses in Canada, led by small business owners of every type: retail store owners, consultants, professionals, farmers, and bed and breakfast owners, among countless others.

Entrepreneurship, in fact, is on an upward trend today in Canada. According to a 2013 Ernst & Young report, up to 150,000 new businesses are expected to emerge in the next 10 years. Canada also has the lowest insolvency costs in the G20, and we have recently recruited thousands of new immigrant entrepreneurs as well.

Business owners are distinct from other types of taxpayers. They are people who invest their time and money first, to reap the rewards of both profit and equity in their enterprises later. There is lots of risk involved, too.

The Canadian tax system takes this into account. Business owners can write off business losses against any income realized in the same year; they can also split income by hiring family members to work in their enterprises. When they sell their qualifying Canadian Controlled Private Corporations, each shareholder may also qualify for the capital gains exemption, which has recently increased to $1 million for qualifying farmers and fishers and $813,600 for other qualifying small business corporations.

Many of those successful ventures of the future will begin in the basement of someone’s home. To reap the full benefits of the tax preferences available, the small business owner must understand the rules of the tax-filing game. This is where a closer relationship with a MFA™ – Business Services Specialist can help maximize the investment.

From the perspective of any business start-up, here are three of the top items to discuss:

• You have a new relationship with CRA. Your obligations to keep meticulous records, self-report income, make remittances like payroll source deductions, quarterly tax instalments, and GST/HST are new to you. Take the time to understand these obligations when you apply for your required Business Number. Knowledge Bureau’s online tax library, called EverGreen Explanatory Notes is an excellent real-time resource for all the latest personal, corporate and GST news.

• Record retention is law; it’s smart business management, too. Because your legal obligation is to self-assess your income and the deductions that will reduce it, and then to report net business income on your personal tax return, expect to open your books to CRA’s audit scrutiny. Most businesses will be required to match income and expenses and so you’ll need to understand the difference between the cash and the accrual method of reporting your income.  You’ll also want to keep close tabs on the cash flow trends of your business venture with weekly bank reconciliations

• Always document and separate personal-use components of any of your expenditures. Treat your business like an individual: Open a separate business bank account and use business charge card accounts. Do not give CRA a reason to go through all your personal accounts.

Therefore, to start, you’ll need to invest in a qualified bookkeeper who should have a comprehensive bookkeeping course under his or her belt.  It also will help you make better before and after-tax decisions to take a great personal tax primer to prepare yourself for your new relationship with CRA, who will be at your side from the very beginning of the venture. At Knowledge Bureau, we can help with those financial education needs.

Evelyn Jacks is President of Knowledge Bureau, a national educational institute focused on continuing professional development courses for advisors. See www.knowledgebureau.com for an invitation to the Knowledge Bureau Report, or register for professional online courses to shore up your knowledge on tax, retirement, business, succession and bookkeeping services.

Want to take a path to deeper learning on this topic? We recommend these books and courses: 

MFA™ – Business Services Specialist

EverGreen Explanatory Notes

Jacks on Tax with our Special Tax Update Supplement