Freelancer, self-employed, contractor, independent, temporary or gig worker and entrepreneur are all terms used to describe sole proprietors. While sole proprietorship isn’t new, it is most definitely on the rise. Sole proprietorship - popularly referred to as “gig work” or the “gig economy”- is fast becoming a thriving industry in Canada. A new generation of workers is trading the stability of a traditional job for the flexibility to customize their work around their lives. In fact, 20-30 percent of the Canadian workforce comprises part-time, freelance, consultant, contractual, temporary, virtual and other contingent workers.1
Setting up a Sole Proprietorship
To legally make money in the gig economy, you must register as a business and pay taxes on that income. The simplest way to do this is to register as a sole proprietor. Once your sole proprietorship is established, you and your business are considered the same from a tax and legal standpoint. Running a business and understanding all the financial strategies can be overwhelming, which is why many sole proprietors choose financial professionals to guide them.
Your Starting Point
Whatever your business is, effective planning is critical to getting the best financial return on your efforts. As a sole proprietor, you are required to pay personal income tax on the net income your business generates. When you file a tax return, you declare your business income on your personal income tax form. The good news is that there are many legitimate expenses that you can claim against your business income that can significantly reduce the amount of tax that you may owe.
The Canada Revenue Agency (CRA) has a list of common expenses that can be claimed against business income. Some of the most advantageous expenses for sole proprietors are:
Use of home, including a portion of rent, mortgage interest, property taxes, insurance, utilities, and maintenance
Accounting and legal fees
Management fees (including bank fees)
Capital cost allowance
Travel, meals, gifts, and entertainment
The important thing to remember is that these expenses must be directly related to earning business income. They also need to be reasonable and supported by original invoices.
Get Professional Advice
One of the wisest investments you can make as a sole proprietor is to work with a trusted financial advisor. Not only can they help you create a personal financial strategy, but they can also provide some advice about basic strategies to help you reduce your personal tax bill each year. As your business grows, your financial advisor can also help you access resources and other professionals to help you with business incorporation, income-splitting and asset acquisition. What’s even better than all having professional support in your corner? Any associated fees are tax-deductible expenses.
Contact our office today to learn more about how a financial advisor can empower you and accelerate your business success.
This publication and website are intended for British Columbia residents only and the information contained is subject to change without notice. Mutual Funds are offered and regulated through Global Maxfin Investments Inc. (GMII). Insurance products (including Segregated Funds) and Income Tax Preparation is provided under the name of Grant Simpson. GMII does not supervise these activities and will not be accountable, responsible or liable for such activities.
This publication contains opinions of the writer and may not reflect opinions of GMII. The information contained herein was obtained from sources believed to reliable, but no representation, or warranty, express or implied, is made by the writer or GMII or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities.
The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional advisors for advice based on your specific circumstances.