How the Self-Employed Can Save on Taxes

If you are like more than two million Canadians, you own your own business, either fulltime or part-time. Despite the sometimes heartaches of being self-employed, there are many advantages. Many entrepreneurs, though, are unaware of the various tax benefits available to them. In fact, running your own business can increase your after-tax income and contribute to family wealth.

Entrepreneurship and self employment promote a spirit of innovation, ultimately contributing to economic growth and vibrancy. As such, the government encourages entrepreneurship by taxing it at lower rates than regular income.

It is not uncommon for a new business to incur losses as it gets off the ground. These losses can be used to offset revenue from other sources, assuming you have a reasonable profit expectation as the business progresses. As your business begins to turn a profit, you can incorporate and the profits can remain in the corporation as a reinvestment in your operations. It is also possible to leave the profits in the business if you do not need a salary immediately. Thus, you can defer paying personal income tax. A salaried individual cannot schedule when to pay taxes. However, when you are self-employed, you can time payments to yourself when the tax payments are to your benefit.

Profits held in the corporation are taxable in the year they are earned. But, the corporate tax rate is low on the first $500,000 of active business income. While rates vary between provinces, all are below 20%. Personal tax rates on comparable amounts can be as high as 45%. It is also possible to pay salaries to family members in the business and have it taxed at their lower rates. Another possibility is to pay dividends to family members who own shares of the company and, thus, benefit from capital gains exemptions.

There are numerous possibilities for self-employed Canadians to benefit from management of taxes and income. All possibilities and options should be discussed at length with your tax advisor.

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More Capital for Women Entrepreneurs in Canada!

Let us not be fooled! In this era of civil rights and equality for all, women entrepreneurs are still fighting an uphill battle with the business community. For the last 18 years, a federally incorporated, non-profit organization known as “Women Entrepreneurs of Canada” has been dedicated to serving the interests of established women in business.

In Canada, 40% of all new start-up businesses are owned by women. Across the nation, Canada’s top 100 companies account for 1.5 million jobs. In comparison, companies owned or led by women account for more than 1.7 million jobs. Furthermore, the number of women-owned start-ups is growing at twice the rate of those by men. The list of comparative statistics goes on but the point is crystal clear. Women entrepreneurs are major players in the Canadian business market. Yet, despite their numbers and influence, women in business still play second fiddle to their male counterparts.

This point is driven home quite clearly when women seek capital for development and growth of their businesses. One reason for the restrictions on capital available to women is the tendency of women to own and operate smaller businesses that are slower to grow and are considered higher risks such as retail and service.

Be that as it may, Women Entrepreneurs of Canada have called upon the Prime Minister to realize the plight of women in business and to address the needs of this substantial segment of the population accordingly. They recommend that the federal government develop an economic assistance program aimed at women owned small and medium sized businesses. Furthermore, they propose that the government develop support programs for women to provide access to technology and management training. This support should also finance and promote international women’s trade missions.

Aside from government action, women entrepreneurs should form business alliances to share information and resources as well as establishing joint ventures to bid on large contracts. Women in the business world should share information as much as possible and use their contacts and knowledge to help others advance the cause of women entrepreneurs across Canada.

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The Right Staff

Remember the movie, “The Right Stuff?” It depicted the U.S. efforts to find the perfect people for its manned space program. Well, staffing your business requires the same diligence and detail. In order for your business to succeed and grow, your staff should match your needs perfectly.

If you’re operating a business, chances are your business will reflect your own personality to a certain degree. After all, you work hard to build an entity and a part of you is in that business. You believe in it! You have the drive and vision to see where this venture should go. Doesn’t it make perfect sense that your staff should share the same values as you?

It is important to remember that most people spend the better part of their waking hours at work. Therefore, they expect that their place of employment will be more than merely a source of income. In fact, surveys have been conducted showing that salary levels are only part of most employees’ expectations.

Do you share your goals and dreams with your employees? Try letting them see the business as you do. Encourage them to be a part of the essence of the business. The more they believe, the better they will perform.

Also, how do you face your “team?” Do you have a sunny disposition? It’s not always easy, especially when problems are on the horizon. But, encouraging a positive attitude goes a long way. Smiles are contagious! In the workplace, a smile makes a person feel good. Feeling good translates into a positive attitude. Positive attitude means productivity.

The bottom line is when employees want to come to work because they enjoy being there, and realize that they truly are important to the success of the business, the result is a business that really has the right stuff.

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$170 Billion Charged to Visa and MasterCard

Once upon a time, there was the Chargex card. Some received it from their bank but most Canadians lived without it. Today, more than 40 years after Canada’s first charge card, there are more than 74 million credit cards in circulation, roughly 3.1 cards for every Canadian over age 18. The last available statistics indicate that Canadians charge more than $170 billion to Visa and MasterCard.

Studies show that the average person spends 112 percent more on a credit card as opposed to cash payments. In real terms, this means that Canadians are living well beyond their means. Many are juggling several credit cards and paying minimum monthly payments as low as 2 per cent of the balance, rather than paying the entire balance. In fact, more than 50 per cent of credit card holders opt for not paying the balance. Putting this into perspective, if your balance was $5,000 at 18 per cent interest, and you opt to pay only the minimum monthly, it would take almost 30 years to pay the balance, assuming you did not add to it.

Part of the problem is that credit cards are a basic necessity of today’s society. Some cards also provide benefits that can be quite worthwhile. The trick is to be in control.

There is no reason to carry a different credit card for each store and each bank. One all-purpose card should suffice for virtually every need. (It is wise, though, to have separate cards for personal and business expenses). Check the interest rates as they vary greatly from card to card. Avoid temptation! Use the card for what you need, not what you want! Using a credit card as opposed to not carrying cash makes sense. Using it instead of cash that you don’t have can lead to problems.

If credit card debt starts taking over your existence, don’t be afraid to seek help from a credit counselor before it’s too late.


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Survey: National Salary Increases Less Than 3%

Ever the employee’s question, the issue has achieved far more relevance in the current economic climate. No longer is the annual salary increase a matter of form. In fact, many employees were relieved at year’s end to learn that they would still be employed for the coming year, let alone expect a raise from the boss.

The truth is that, owing to a negligible inflation rate, even the slightest salary increase will, in reality, contribute to a gain in living standards. Nonetheless, this is not to say that salaries in Canada will not rise this year. The question on many lips is how much?

According to surveys conducted recently across Canada, encompassing a broad spectrum of more than 700,000 employers, Canadians should not expect large increases this year. Estimates average between 2.3 to 2.8 per cent nationally. Although the national average was 2.2 per cent in 2009, caution in the business community is keeping the numbers down, at least for the foreseeable future.

Employees in Saskatchewan are projected to earn 4.1 per cent more this year, due to the province’s energy boom. Ontario and British Columbia bring down the national average, as estimates are increases of 2.6 and 2.7 per cent respectively, due to low performance in manufacturing and forestry.

In actuality, many companies across the country have projected zero salary growth for 2010. While this is not set in stone, many employers are waiting to see how the economy reacts over the next few months before making new financial commitments.

Another factor to be considered is the number of employees pulling double workloads to compensate for reduced workforces. Easing these conditions could also be considered to be a benefit.

In this recession, every little bit will help.

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Harmony in B.C.? The implementation of the Harmonized Sales Tax (HST)

July 1, 2010 is rapidly approaching in British Columbia. While it will be a national holiday as it is every year, it is also the date that the province will implement the Harmonized Sales Tax (HST). The jury is still out on whether it will be good for the province or not.
 

The answer, at this point, depends solely on who is asked. There are clearly going to be winners and losers in this new tax. The decision to implement the new tax is final. The actual impact is still theoretical.
 

It seems that the majority of the B.C. business community is clearly in favour of the HST. With 130 jurisdictions around the world using an HST style tax, B.C. simply cannot ignore joining the fray, if it wishes to compete for business investment. The province must offer the same tax advantages to the business community, lest businesses move elsewhere to obtain the benefits. Similarly, with e-commerce on the rise, retailers and manufacturers are competing with provinces like Ontario, which voted to adopt the HST.
 

A major challenge lies with the hospitality industry and other business sectors that currently don’t have to charge PST, or services that don’t have to charge GST. Under the new HST, these businesses and services will have no way getting back the HST. In essence, here will be the new tax burden with no relief in sight. Also, the average consumer will pay more taxes. Consumers cannot claim any portion of the HST but will pay more for products and services that are currently tax exempt but will not be so under the new HST.
 

Economists claim that implementing the HST is the right move for B.C. Come July 2010, B.C. will see if the economists are correct.
 

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Canada Goes Self-Employed

The truth is out. The latest trend in the business world is self-employment.
 

The recent recession has manifested itself in many ways across the nation. For many Canadians who found themselves unemployed as a result of cutbacks, downsizing, etc., the choice was despair or repair. The former meant waiting until something new comes along. The latter meant channeling one’s talent and energy into a new venture as one’s own boss. Statistics Canada revealed some fascinating employment figures. In April of this year,some 36,000 new full time jobs were created across the country. Nearly all these jobs were from self-employed Canadians. Overall, this translates into one in six Canadians being self employed.
 

Of course, becoming self employed is easier said than done. The process requires a large measure of self determination to make your idea work. In addition, self discipline is required in no small measure.
 

It may seem like a great convenience to get up in the morning and already be at work, if you’re working from home. The danger is as great as the convenience. Experts have offered various tips to help you along.
 

It is imperative to make a distinct separation between work and home lives. Temptation to get distracted with household issues is very easy. Making your business succeed requires utmost full time concentration. If you wouldn’t run out for milk and the cleaning at your old job, don’t do it now.
 

Remember that you used to go to work at an office? Set up a distinct office at home and go there in the morning. Keep regular hours at your office. Get dressed for work in the morning.
 

These are but a few steps in maintaining a work ethic that will enable you to focus on the task at hand; launching a successful new job with an extremely determined boss – you!

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Is There An Employment Boom?

Recently released statistics by Statistics Canada indicated positive employment figures for November 2009. But, is the picture truly as rosy as it appears?
 

According to the figures, Canada’s unemployment rate dropped by one-tenth of a percent from October, reducing the rate to 8.5 per cent. Full time jobs increased by 39,000, while part time employment increased by 40,000. While these 79,000 new jobs indicate a strong pick-up in the labour force and, subsequently reflect on a steady recovery of the nation’s economy, there are a few factors to consider that may curb the euphoria.
 

First, it should be pointed out that economists agree that this pace of job growth is entirely inconsistent with the current pace of economic recovery.

Next, economists are concerned that the total hours worked declined by 0.3 per cent. In other words, more Canadians are working but less work hours are being paid. Simply put, Canadians are bringing home less money.
 

Another point noted is that almost all the new jobs – 73,000 positions – were in the service sector, primarily in educational services. It is quite possible that this gain may be an abnormal seasonal adjustment. December, therefore, may be far less positive in terms of actual job gains.
 

Economists are also concerned about weak job productivity as a result of various factors compounded to negatively impact workers’ motivation.
 

Finally, self-employment fell by 32,000 jobs in November. In theory, this drop can be viewed positively. In a weak economy, self-employment gains are generally discounted. They are viewed as a fallback for unemployed Canadians who have no choice but to start their own businesses in lieu of regular work.
 

Is the Canadian job market truly on the mend? Only time will tell.

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Show Me the Startup Money

You have the idea and the knowledge. The desire, drive and ability are there. You’re ready to dive into that new business but, alas, you lack the money to start. Where does an entrepreneur secure the necessary start-up capital for a new venture?
 

By far, the easiest source of funds is from family and friends. Roughly 13% of all Canadian entrepreneurs use this route. Keep in mind, though, that family and funds don’t always mesh well. It may be a better idea to have a relative or friend co-sign or guarantee a loan, rather than lend their own money.
 

Certainly, the lender with the most available cash is the bank. Unfortunately, though, banks often pose the most obstacles to borrowers. One solution to satisfying the bank’s criteria is to apply for Small Business Financing via your bank. This federal program is backed by Industry Canada and guarantees 85% of the value of bank loans.
 

Angel capital may work for you. “Angels” are investors, generally former business executives or entrepreneurs. In addition to their money, they also can offer expertise and contacts. While they are not seeking control of your company, they do expect a healthy return and may wish to take an active role until their investment is returned.
 

It is well worth investing some time and energy to see if any government programs are applicable to your needs. Generally, these programs offer favourable terms and have flexible payment options.
 

Some 22% of Canadians have used credit cards to fund their start-ups. By checking interest rates, some have found these loans to be to their advantage.  Also, as new credit lines with lower rates become available, older loans can be repaid and interest saved.
 

Consider all your options and best of luck in your new business.


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‘Tis the Season to be Eco-Green

Some say it’s fashionable. Others say that it’s political fodder. However, most Canadians have begun to see that our climate is truly changing. As such, the way we live must change as well. And, certainly, the business community must become far more environmentally sustainable.
 

Business analysts have discovered that “going green” is not just a socially acceptable act. It actually makes good business sense and, ultimately, has a positive impact on the bottom line.
 

For example, eco-friendly companies are those that have managed to reduce resource usage and waste volumes. In turn, this reduces expenses, both in personnel and equipment. A recent research study concluded that integration of sustainability practices can increase profits for small and medium sized companies by up to 66% over five years.
 

Customer relations are the backbone of business. The public is far more likely to support industry that is doing “the right thing” in regards to the environment. Recent studies have shown that two-thirds of consumers are likely to shift their loyalty to environmentally friendly companies.
 

Companies can also realize savings from reduced personnel costs. Hiring and attrition cost money. A recent survey of students revealed that 68% felt that social and environmental reputation of an employer were more important than salary. Most would prefer to sign on for the long term with an eco-friendly employer.
 

Recycling is good for the environment as well as for the ledgers. Companies can save tremendous amounts of money by recycling equipment and materials. Moreover, by encouraging employees to take part in the effort, companies build loyalty and increase productivity.
 

Don’t view going green as a threat. View it positively and reap the benefits of a healthier environment and a rewarding business.

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