Doing business as a registered business...your experiences?

[javax.swing]

In evaluating my sales since I began selling aggressively at the beginning of the summer, I find myself close to the $30,000 taxation mark. I know without a doubt I will surpass this mark in 2005. I’ve read most of the government pages about what I need to do to register as a business, the paperwork for taxation (GST, PST, income tax, etc)…

Because I know I’m in the company of many high volume sellers here, I just wanted to get some feedback on your experiences with the system in Canada and how you run your business within it. I know I’m going to have to keep much more stringent records now, so what do you use to keep these records, print invoices, etc? Any quirks, oddities, or things you were surprised (?) to find out in your experiences running your business (from whatever aspect)?

I’m just looking for some insight into how some of you run your businesses…stuff the government webpages can’t tell me. I'm being a little on the vague side just to get the ball rolling.

Thanks in advance.

[zarzuella]

Sure, some comments off the top of my head:

The $30,000 limit applies only to GST.
PST and Income Taxes are payable/reportable from dollar one.

Business bank accounts are very much more costly, and if you use a business name (even as a sole proprietor), your bank will insist that you open a business account.

If you sell primarily out-of-country, you will get most of the GST you pay on your purchases rebated.

Ann

[shoplineca]

As Ann pointed out, keep really good records on what you are shipping out of the country, have your shipping docs clearly cross referenced to your invoices.

Even in this day of high tech, I print off an extra copy of the cusotmer's invoice and I hand write the B/L number on the bottom and keep each month's invoices in file folders. All my expense receipts are kept in labelled envelopes while I record the individual expenses on a spreadsheet.

At year end, after preparing an income statement, I box everything into a single box and mark it for the year ending December 31, 200X and that is it unless a tax auditor needs it.

You will need to decide if you want to incorporate or operate as a sole proprietorship. The reporting relationship to the government increases substantially if you incorporate.

It really depends on two things. (a) If your business may have liabilities and you want to remove yourself personally from those liabilities and (b) if you are building a business that you think you may want to sell someday.

In both cases, incorporating is the direction to go otherwise, keep it simple and operate a sole proprietorship.

As Annn also pointed out, you should be reporting PST at sale $1 and up.

Malcolm

[ospreylinks]

Keep accurate records of all income and expenses so if audited you can prove the net of your operation.

You must report PST on all resale items sold within your provincial jurisdiction (unless you are selling personal assets and can prove it).

You must register for a GST number if your gross sales are over $30,000/ year. However having a GST number has benefits as being able to claim input credits against goods purchased and GST paid to operate or for resale in the business. (it isn't that hard to do the quarterly or monthly return and you should be tracking sales and taxes collected anyways).

Yes a current account at a bank is more expensive to operate than a personal account, but you should be keeping your business transactions separate from your personal activities anyways. (it is much easier during an audit).

Good luck..

Jeff

[scouttech-outfitters]

Javex - I would definatly register your business ASAP. As a sole proprietor it allows you many extra tax benefits allowing you for a larger tax return. Not to mention you get all of your GST back on any business related purchases. As most of my combined business (eBay + real businesses) are export I get a sweet $3000 back every 3 months and does it ever help with my cash flow!

When you register GST they will ask you if you want reports every month, quarterly, or annualy. As income tax is a huge deal for most people I reccomend asking for it monthly or quarterly, that way you can do it in smaller amounts every 3 months and always have a little bit of cash flow coming in rather than doubling the paperwork at the end of the year

Good Luck!

[golfing_in_style]

So far all good advice.I spent about $75.00 and met with an an accountant for an hour just to make sure I had everything covered.She provided me with timely information and reconfirmed alot of the things I had researched.It just made me feel better,although a little lighter in the pocket.But I consider it $$ well spent.I had prepared questions ready ahead of time to ensure I got the information I required.
Keep all your receipts...
good luck
rik
golfing in style

[dragons_horde]

Actually the PST charge requirement is only for those provinces that insist on a different collection. The Maritimes has a harmonized 15% and unless you collect GST you do not collect the PST.

So it depends on the province of origin. (I assume the sellers that indicated that you charge PST were from Ontario or certainly not the Maritimes)

[javax.swing]

I didn't think of myself as a business right off the bat...buying/selling/trading DVDs was more of a hobby for me during the summer that trailed off...similarly with audio components, it was just me experimenting with various components in my system and selling the ones I didn't like.

All this lead to discovery of a market, and so now it's something I'd like to do as a business...I hope I don't have to report PST/income tax on what I sold while this was still in a "hobby" stage.

What do you folks use in terms of software to generate invoices and do accounting?

If I have to pay PST on business expenses, is that refundable to me the same way GST is?

[shoplineca]

javax.swing
You can get into trouble with the PST if there was ever an audit.

You might get a new eBay userid, a whole new account to avoid any possible problems for not charging, collecting and remitting on your sales to date against your old id.

There could be some problems with respect to generally not reporting income personally as well (on your Federal T-1 return).

Take a look at some of the threads from a week ago, there was one on accounting software so it has been covered.

There are a lot of decutions that can reduce other income you have including a portion of your mortgage or rent, utilities, automobile etc.

Check with your local Chamber of Commerce on free (or nominla charged) courses that are offered in your area. Sometimnes the local library will post information on these, but certainly your City Hall.

Malcolm

[ospreylinks]

Javex.... Revenue Canada and Minister of Finance (PST) don't know what hobby income is.... If you made money (a profit) or sold none personal assets, you have to pay tax and collect and remit sales tax (I am speaking Ontario here).

In terms of getting a rebate on PST... yes and no... well not a rebate as much, but you can get PST money you paid on goods refunded. Goods you purchase for resale, providing you have a PST number, can be purchased PST exempt from your supplier providing you have provided a PST exempt form. If you purchased any goods for resale, but ended up paying PST on them, this can be deducted from the PST collected on sales to be remitted to Minister of Finance (but keep receipts and documentation in case of audit).

Unlike GST, PST paid on items for the operation of your business are not exempt, nor do you get a rebate or input credit similar to GST. (ie, the computer you bought to run your Ebay operation is not for resale, but a consumable used by the business and it is neither PST exempt, nor can you deduct the PST paid as other than a business expense).

However, if you buy any goods and pay sales tax on them that are used directly to sell a taxable item, then you either can a) have the supplier sell them to you as tax exempt (again providing a PST exemption form) or b) if you paid PST on the item, deduct this PST amount from your remittance. An example would be say if you ran a coffee shop and obviously sold cups of coffee. You go out and buy styrofoam coffee cups and napkins and end up paying PST on them. As they are used in the sale of the taxable item, you can either purchase these items as PST exempt or deduct the amount of PST paid from your remittance.

However the cash register you bought to register the sale, or the cash register tape to document the sale are neither PST exempt or can you deduct the PST paid as they are not considered items for resale, but rather consumables used by the business..... clear as mud I hope.

Jeff

[discountlabelsupplies]

I was in the same situation. This was a "side hobby" from my regular business. When I saw my sales, I registered a new company. I think I spent about $1000.00 for all the paperwork *(give or take a couple hundred as I forget the actual amount). The advantage of course of having a legit company is that you can have tons of write offs. Your accountant will tell you how much area of your house can be written off against the interest you are paying on your mortgate/rent etc. Dinners, travel,gas, a portion of home repair (to exterior or to area of work), computers/computer upgrades etc all should be put through your business. The taxman won't look too closely in my opinion unless you are writing off rediculous amounts and making it not a vialble business in the books.

A decent basic program is simply accounting. Will handle inventory, payables,receivables etc.