Starting a business in Nova Scotia
By Julie King | April 15, 2014
Meg asked:
I am looking to start up a consulting business in Dartmouth NS and I have a few questions. I am going to be working on this only part-time so do I have to get a Business Number? And as for tax purposes, when I do receive payment for my work, how much tax should I be deducting to make sure all bases are covered and do I need to charge HST? Also, am I able to claim certain housing expenses (rent, internet etc) when only doing it part-time?
Julie King answered:
Thank you for your excellent questions.
Starting a business part-time is a great way to give yourself time to develop customers while still dedicating time to other priorities in your life. As long as your part-time business aims to make a profit, it is a legitimate business and is entitled to deduct eligible business expense.
Let me answer some of your specific question:
When to get a Business Number?
The Business Number is issued and used by the Canada Revenue Agency to help streamline the way businesses interact with different departments. It starts with a nine digit number, followed by a combination of letters and numbers to indicate a specific program.
You do not need a business number unless you need to register your business for a specific program. Here are the four most common situations in which a business will need a business number:
HST/GST (RT): If you need to register for HST/GST (discussed below) you will need a business number tax account, denoted by the letters RT after your 9 digit number.
Payroll (RP): If you will hire and pay employees, you will need a business number payroll account, denoted by the letters RP after your 9 digit number.
Corporate income tax (RC): If you decide to register a corporation, as opposed to a sole proprietorship or partnership, you will automatically be registered for a corporate tax account, which is denoted by the letters RC after your 9 digit number.
Importing/exporting (RM): If you will import goods into Canada or export goods to other countries, you should register for this account, which is denoted by the letters RM after your 9 digit business number.
When to charge HST/GST?
A business must register for and charge HST/GST when it has gross sales of $30,000 or more, either annually or in any four consecutive quarters. Our HST/GST primer provides more detailed information. Even if you are not required to register, you may want to do so to take advantage of the input tax credit tax deductions on business expenses.
What personal expenses can you deduct?
You are entitled to deduct most expenses that are needed to run your business, even if there is a personal use component, as long as the space is either the primary place of your business or is used only to earn business income and is the place where you regularly meet clients. This enables you to deduct rent, utilities, insurance and cleaning fees.
CRA's formula for what you can deduct takes into account the amount of space used by the business and the time that you are in this space. Calculating your business-use-of-home expenses is explained in more detail here: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/t2125/ln9945-eng.html.
What money should you set aside for year-end taxes?
Without knowing more information about your personal situation, it isn't possible to provide clear direction.
For example, you indicate that you will be running the business part-time, so if you will also be earning income from a part-time job you will need to save more, whereas if you are a post-secondary student your tuition fees may offset much of what you might pay on net profits from your part-time business.
There are a few differences you should be aware of:
Income Tax Estimates: To understand what money you earn will be taxable at year-end, you will need to estimate your net profits / overall income. You can use this information, along with your other earnings or deductions, to get a sense of your overall tax obligations. The CRA has tax tables http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html you can use to estimate your overall tax obligations.
CPP: Watch out for the CPP portion, as when you are self-employed your CPP costs double, as you will now pay both the employer and employee portion.
EI: Most self-employed people do not pay employment insurance premiums, but it is possible to opt-into the program on a limited basis. This can be help self-employed individuals access maternal, parental, sickness and compassionate leave benefits.
Installments: You may need to pay taxes on your business earnings by installments. To find out if you do, you can use this simple tool on the CRA website: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/qstns/q1-eng.html.
Our Guide for Independent Contractors is a good starting point to learn more about your tax obligations, while the article A Guide to Expense Deductions in Your Canadian Business will help you understand nuances for some of the expenses that have restrictions or can only be partially claimed.
It costs a bit of money, but I believe investing in some initial support to help you get your business books up and running and get advice from a professional on how to handle your personal tax situation is a wise investment.