With tax deadlines looming, it’s officially time to panic for many small business owners and self-employed professionals. That’s why we’re calling in the experts for our second round of Ask an Accountant (catch Volume 1 here).
Adam Singer CPA (CA), CFE, is a chartered accountant, co-founder of Singer Steinberg Professional Corp, and writer at There’s No Crying in Finan¢e. In our Ask an Accountant series, Adam shares his wisdom about tax preparation, financial planning, and anything else small businesses and self-employed professionals need to know.
1. I’m a self-employed consultant and I’m hiring a designer to make me a logo, what do I need to know about contracting out work like that?
If you’re hiring a freelancer to take on some of your work, you should make sure that you’re aware of their HST status so you can correctly record your transaction with them. If the freelancer is HST registered, they’ll include HST on their invoice, which (if you are also HST registered) is recoverable to you.
If a freelancer isn’t HST registered, there is nothing additional to consider–and it’s very common for freelancers to not charge HST for their services.
2. Do I have to have a separate business and personal bank account? What’s the best way to keep my finances separated?
As a self-employed person, it isn’t required to have a separate bank account, however, to keep your finances for your business activity in line, I always recommend having a bank account and a credit card that are for business use only. You should also be keeping your expenses and receipts separate. This makes things much easier to track.
If your business is incorporated, you should have a separate bank account in the company name. It becomes challenging doing payments and deposits from a bank account that have a different name than yours.
3. Help! What’s the difference between a corporation and a sole proprietorship?
There are many differences between a corporation and a sole proprietorship but some of the key ones include:
- A corporation can have multiple owners, but a sole proprietorship is owned by just one person
- A corporation is a separate entity that can shield you from personal risk
- A corporation requires additional accounting and tax set up that a sole proprietor would simply include in their personal accounting and tax reporting
- Corporations and sole proprietors are subject to very different tax rates (although this concept is more about tax deferral than paying more/less tax)
4. When should I apply for a GST / HST account?
To keep it simple, you have to apply for a GST/HST number when your annual sales exceed $30,000. Which means that you do not need to register for a GST/HST number until your sales exceed $30,000 within a calendar year, even if you’re incorporated. That said, you’re allowed to register for a GST/HST number anytime you want, even before your sales surpass $30,000.
Personally, I recommend registering for one immediately when starting your business if you think your sales will surpass $30,000. You can only claim back the GST/HST on your expenses (better known as input tax credits) if you are registered, so it just makes sense to do it early.