If you plan to start a small business, you will face a complex set of federal, provincial and local requirements. There are confusing laws and regulations by which you are supposed to comply and your efforts will be taxed at multiple levels. Worse, depending on the area where you operate and the type of industry, the rules will vary.
We’re not attorneys and we are not here to provide legal or tax law advice. Further, this short blog isn’t enough to cover this topic thoroughly. However, we can make you aware of a few of the challenges you will be required to face.
1. Business structure
First, decide on the structure of your business (e.g., partnership, LLC, S-corp, C-corp, etc.). We have addressed this issue in a previous article, but in short, you should consider being an LLC or an S-corp. These business structures will provide you with some liability protection from your company (such as lawsuits) and they offer some tax advantages. We suggest that you consult an attorney for further details.
2. Payroll and taxes
You are required to pay personal tax (federal and provincial) on any salary you receive from your business. This means that the company will have to file both federal and provincial withholding taxes. This can be complex because you have to deduct income tax, CPP, and EI from every paycheck. On top of it, the employer has to match the withholding CPP tax amount.
If you require a payroll service, we can provide a fast and affordable service for your convenience and compliance with the up-to-date regulations. We apply Intuit QuickBooks in our business, ensuring the accuracy of the payroll calculations, as well as we hire an outside professional firm to set the payroll up in compliance with the payroll laws and these are periodically updated or we have access to them on an ad-hoc basis. Staying up-to-date with an always changing regulations can be frustrating. Lean on us and our reliable sources to get your payroll prepared right the first time.
Don’t get us started on the new regulations surrounding the Affordable Care Act, which will add another level of complexity.
If you are an LLC, profits of the business (even if they are not paid out as dividends) will be divided between the owners on a pro rata basis and each will have to pay their own portion of the taxes. However, if the business earns above the 30,000 threshold, you’ll have to file quarterly withholdings or you may risk incurring a penalty at the end of the year.
3. Other taxes and fees
Depending on your province’s regulations, you may need to pay for workers’ compensation insurance. For instance, business with three or more full-time employees is required to obtain WSIB.
If you sell a product rather than a service, you’ll have to pay sales tax. It can sometimes be unclear where the line between a product and a service is drawn. For example, if you are paid by the hour to write code for someone, that’s probably a service. However, if you are paid for developing an app that you deliver to someone, that may be considered a product.
Again, depending on your province’s regulations, you may need to register your business with the Provincial Tax Commission and to pay an annual license fee.
Your county or city probably has some tax requirements as well. You may be required to obtain a local business license (you can’t open a bank account without one). as well as paying an additional tax on our revenue earned. In addition, it is required to file and pay taxes on the assets of the business.
Most labor laws apply to companies with even just one employee. There is rather a large amount of them and they can be rather complex.