In Canada, the two most common legal statuses for businesses are; a sole proprietorship or a corporation. As a sole proprietorship by definition your business is unincorporated. It would only have one owner (you!) and you pay personal income taxes on all profits, claim all losses and are legally indistinguishable from your business. If you’re a sole proprietor you have to ensure you’re charging the right sales taxes and taking part in the deductions that you’re eligible to claim.
Federal sales tax in Canada is complex, there is no denying it. In simplified language, sales tax is a flow through tax. You are charging your customers for ‘consuming’ your goods or services and then passing that money onto the government. It never belongs to you, it belongs to the Federal Government.
In Canada, it is a bit more nuanced than just charging sales tax. One of the first questions to ask yourself is have you surpassed the small supplier threshold? If not then you may not be required to charge sales tax as of yet. Once your world-wide taxable supplies surpasses $30,000 in the trailing 4 quarters or less, then you are no longer a small supplier. WOW that was a meaty sentence, but unfortunately that’s the definition! Once you are no longer a small supplier you need to register by the required deadline which can vary based on how quickly you surpassed the threshold.
Location matters too, when it comes to your goods or services you need to ascertain based on your recipient location/address what rate you need to be charging. In Canada, GST/HST varies by province, and when your recipient is outside of Canada it changes again.
If your office is your home then you may be in massive luck! Canada Revenue Agency lets you expense a portion of things like your mortgage interest, utilities and repairs/maintenance to name a few. You have to meet 1 of 2 conditions in order to qualify.
Easier said than done but tax time doesn’t have to be horrible. Reading this you’ve already started the number one rule to avoid stress: educate yourself. If you start from day one with the proper tax documentation and records you’re already setting yourself up for success. Our course will go deeper on these topics (and more) to make sure you’re not only equipped with knowledge but actionable templates and worksheets as well.