I recently started working as a Freelance contractor, dealing out my services as needed. I have been interested in Freelancing for some time and even more interested in learning the business side behind all of the actual work I will be doing. Just over a month ago I set out to learn the steps, pros and cons and possibilities of starting a business. Now I would like to share what I have learned in hopes that it will one day help you embark on the same task Owning a business license has many perks if you are in the right situation to use it.

1. What type of Business type do you want or need.

You can register your business in one of three ways: sole proprietorship, partnership or corporation.

• Sole proprietorship means that you are the sole owner and directly responsible/liable for your entire business.
  • Cheap and easy to setup.
  • You can write off many of your purchases, bills and even a % of your rent. –More details to follow in this post–.
  • You don’t pay taxes upfront, so you need to save for taxes as you go, The plus side is that you can invest those savings until tax time comes around and turn a profit of a few Hundred or more.
  • You don’t pay EI, so if you are out of work, you can’t get EI.
  • You pay both the employer and employee CPP premiums.
• Partnership is a split proprietorship. Each partner is equally responsible for the business.
  • Again, cheap and easy to setup.
• Incorporation registers your business as a separate entity all together and opens a whole new realm of possibilities.
  • Costs more to set up and maintain, mainly accountant and lawyer fees.
  • Allows for significant tax deductions. Example, all income to the corporate account is only taxed 15% as opposed to the %30+ for personal income.
  • You can pay yourself with dividends (this is a limited % of the total income) from the corporate account with little additional taxation.
  • You are protected by the corporation, if sued, you cannot be sued directly.
  • You pay EI and CPP on any Salary paid out. You might need to pay yourself some salary if the Dividends do not cover your needs.
  • When you pay yourself salary from the Corporate account, the corporation no longer pays taxes on those funds, you now pay taxes at personal income rates.

I have chosen sole proprietorship until such time where my business income is consistent enough to justify spending money and time on incorporating.

2. Name yourself!

Now you need to choose a business name. How do you want to brand yourself? You can be as creative as you want, but there are only 2 rules.

The first part of the name must start with a distinctive, non-descriptive word or phrase. Your name, a location or fictitious name or phrase are all allowed. ie Rick Smith, One Up, Ooga Booga or Long Live The Pixel.

The second part of your name must be a descriptive word. For example, Marketplace, Digital Art, Entertainment or Creative services.

So the business name Long Live the Pixel Creative Services would be legitimate, but Creative services by Long Live the Pixel would not be.

One great tip that my good friend Peter Hunt shared with me is that if you can, try to make your descriptive word as vague as possible so the government can’t limit you to your services rendered. If you make your business name Ooga Booga Digital art, then you can actually get into some legal trouble — Though very unlikely — if they find you have been providing non digital art services too. This is a little more serious if you are say, registered as an accountant and you start providing art services.

Here are some vague name suggestions: Entertainment, Creative services, Art services or Arts. Prime example. Electronic Arts!

• Request your name approval in BC online at bcregistryservices Note that you can request up to Three names at a time, if your first requested name is approved, they won’t check your second and third. This will cost you about $35.

3. Register your business with all 3 levels of government.

Provincial - When you receive approval you have 56 days to register your name with BC. Step 3 from this page at bcbusinessregistry will take you pretty the rest of the way. To register your approved name it will cost you $40.

National – When you are done, the website will ask if you want to transfer to the Canada CRA –Revenue Agency– Website to register your business in Canada and obtain a GST number. Do this next and note that you only need to register for GST if you are going to make more than 30,000 income with the business in it’s first year. After that, you will need to register for GST.

Municipal – This step is fairly easy. Browse to your city of residence’s website and see if you can register online. I registered my business with North Vancouver. This can cost you anywhere from $50 to $150 or more. I paid $110.

Information.

GST.

• You must charge 5% GST on all invoices and pay the collected GST to the CRA.
• You choose how often you want to submit your GST to the CRA. Quarterly or Yearly.
• Keep track of your numbers, there are penalties for missing or undercutting GST owed to the CRA.
• The plus side to having a GST number is that you can get back some or all of the GST paid on any purchases or bill payments related to your business.

Taxes and write offs.

What is a tax write off? Basically, if you make $1000 you will be taxed a %, basic info, I know. So say you are charge 30% tax on your $1000, you pay the Government $300. Now if you purchase some equipment for $1000 and write off the purchase, you will get the $300 back because the $1000 you spent is business related and is no longer taxable income.

• Get an accountant and save every receipt from everything you buy.
• If you are running a home office, you can write off a % of your rent/mortgage equal to the amount of space your office and equipment takes up. My desk, materials and equipment take up about 25 to 30% of my apartment. So I will write off 27% or so of my rent.
• Write off 100% of your Cable, internet or phone.
• Write off some of your food.
• Write off your Toilet paper.
• Bought a new TV? Write it off, chances are you will be using DVD’s as reference and testing your Portfolio DVD’s, so it counts!
• AND get your GST back from all or a % of these purchases.

Links.

http://www.taxtips.ca/small_business_income_tax.htm

http://www.taxtips.ca/gst.htm

http://www.canadaone.com/tools/startingabusiness.html

Good luck!

Chad Fox
Visual Effects Artist | Modeler | Lighting TD | Instructor