How To Start a Business

by Mr. Cheap

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The Baglady recently mused about setting her blog up as a business and earning income from it. A number of bloggers who have typically been employees and are thinking about trying to earn some cash running a business probably go through this thought process and don’t know what to do.

When I was starting a business years ago, I kept thinking “I’ve got to make sure I do the paperwork right or the business police are going to come and throw me in jail”. Or charge me outrageous late fees. Or something else bad that I hadn’t thought of yet.

Often you can see the strength of an economy by how much the government keeps its nose OUT of private business. The easier it is to start a business, the stronger the economy. Countries that limp along economically often have convoluted, bureaucratic processes required to “hang your shingle” on your door and start running a business (and they suffer, in part, because of this).

In Canada (and most Western countries), all you have to do to “start” a business is start making money. You report this on your tax return in the appropriate place. Say you have a garage sale and sell $200 of your old junk, congratulations, you’re in business! Its considered a “sole proprietorship” and from a legal perspective you are the business. Revenue Canada couldn’t care less as long as you report (and pay taxes on) what you earn.

No one will show up in the middle of the night and beat you up. Isn’t it great to be a Canadian?

The “threshold” when you have to do more is once you are forced to start collecting GST. Until you earn $30,000 in a year, you’re considered a “small provider” and you don’t have to collect or charge GST unless you want to. Once you earn $30K over the previous 4 quarters (or immediately if you earn $30k in a single quarter), you are required to get a GST number and begin charging and passing along tax collected to the government. This is a very easy process, requiring about 15 minutes at this website.

There are obviously reasons why you might consider incorporating, forming a partnership, or other business structures. However, if you’re just starting out and testing the waters with a new venture all you have to do is keep track of your revenue (and pay taxes on it), and drink a toast to capitalism!

What has your experience, if any, been starting a business in Canada or other countries?

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{ 11 comments… read them below or add one }

1 MillionDollarJourney

This is an interesting discussion. What about a blog that makes over $30k/yr? Would they have to start charging GST for their ads?

2 plonkee

In the UK, you have to register as self-employed with HMRC. I think this is because if you don’t have to pay tax, or your a medium or less earning employee, you don’t need to fill in a tax return.
So if you didn’t declare self-employed they wouldn’t send you a tax return and then you wouldn’t be paying tax. According to HMRC, that would be a bad thing.
Anyway, it took me about 5 minutes to register on the phone, and then I filled in a small earnings exemption form so that I don’t have to pay National Insurance. Because I earn so little, filling in the self-employment part of the tax return looks to be a matter of stating my business income, expenses and net profit.

3 FourPillars

MDJ – What about a blog that makes over $30k/yr?

Why do you want to know? :)

Plonkee – sounds like the process in the UK is pretty simple.

4 The Dividend Guy

It is that easy – I think most bloggers just find themselves in business once they start earning money fron Adsense etc.

I think one thing that is important to do is set aside 10 – 20% of your earnings just to make sure you have enough to cover any tax liability you may have with the income from a Small business come tax time.

The Dividend Guy

5 Mr. Cheap

MDJ: I think you would. Providing advertising space is a service, so you’d have to charge taxes for it. there would be special rules if you were selling internationally (I don’t think you’d have to charge foreign customers GST).

You’d just invoice people you sold advertising space to and add the GST to their bill.

Plonkee: Interesting that the UK complicates things. I think that’s a mistake.

6 MillionDollarJourney

Adding GST to ad sales really complicates things. Especially when it comes time to file. :) I’ll have to double check with my accountant on the correct procedures.

Thanks for the info!

7 ThickenMyWallet

If your ad provider is not a resident Canadian person, you do NOT charge GST. GST is only applicable if revenues are being derived from Canadian persons (the legal term “persons” includes business, partnerships etc) and the service being provided is not exempt (advertising is not a GST exempt service).

If you make over $30K, you must obtain a GST number and remit at least once a year. However, if you collect over $1500 in GST in the previous 4 quarters, you must remit quarterly.

I suspect that most ad revenue is from non-Canadian sources but the business of blogging is paying GST on things like computer purchases etc. If this assumption is correct, most blogs would not collect more than $1500 in GST a year.

8 Warren

Don’t forget that if you start collecting GST you also get refunds on GST paid for things you buy to keep your business going (hosting fees, etc.)

I am involved in starting up a new business, and there are a few hoops to jump through, but I think it sounds more like a big deal at the beginning and will quickly fade to nothing when I look back on it.

Then again, I’m also somebody who wants to do things by the book.

I second the comment on making sure you leave some money to actually pay your tax bill. I made sure to do this for my rental income. I think a lot of people out there just collect the rent and don’t declare or pay taxes. You don’t want to be on CRA’s bad side.

9 MillionDollarJourney

TMW and Warren, so if a business collects GST, that means that the business can also claim GST on the business expenses like computers. After claiming the GST, can you depreciate the value of the item as you normally would?

10 moneygardener

informative post cheap…

11 WoolyWoman

Mr Cheap your enthusiasm is the best. I agree completely with your “You CAN do it!” message-it is rather (shockingly) easy at first, it is only as the business grows that you have to start getting in to more complex issues such as GST. I have learned a lot along the way simply by reading government websites, because OF COURSE they want people to start business, and provide them with the resources to do so.

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