However, I'm someone who struggling to figure out how you go about starting your freelancing service as a sole-proprietorship while operating legally with my government. You know, registering for a business permit (good for 5 years as I heard) including its fees, a GST/HST number to pay those mandatory taxes from the income you make from that business and anything else that entails to starting up. While I'm glad when the people I ask for advice on this matter are supportive and even greater when they like my portfolio samples, I DO need more than just pep talks; I'm looking for actual steps for how you properly set yourself up for making a living while not making a lot of goof-ups with government regulations. I'd received titbits of helpful knowledge as I went to art shows and galleries to speak with artists and writers since graduating.
So here's what I've figured out from what I gather as far:
1. Your Business Plan: Your blueprints to the workings of your services
- Before you even consider starting, work out what you're going to be freelancing about. In my current case, to make illustrations for publishing media that usually do sequential works for young audiences. So in a nutshell: Doing this trade, for these customers/companies that do these projects/products, for these targeted customers/demographs. Whatever service you want to sell to others, make sure it's something you can do professionally and be self-motivated into doing for the long term.
- Next, work out how your business is going to do this. I've found some good samples of dummy business plans and checklists from Google and business bureaus on what you usually have to include for it: Description of Business, Operations, Resources, Permits, Marketing, Target Audience, Finances, etc. Regardless of which country you're working from, these are most of the basics you need to touch base with, making a organized and precise plan that explains and informs others of what and how you're going to be doing it.
- Lastly, a 10,000 word essay for english class isn't necessary. Maybe it might if you're planning to be a big corporation like Disney, wouldn't be the expert on it. The point of the business plan is for two reasons: 1) To get your knowledge of what running a business is like on paper and 2) if you're going to need more money from others to cover start-up costs/overhead, they'll like to know that you had planned out how to use the money effective, especially it's all a loan that's expected to be repay later. It can be just a few, like 2 to 10 pages and it won't be set in stone where you can't edit it later if you chose a different direction or including new details. You mainly want to be able to show others what the service is about and keep it as a personal set of guidelines for you to follow by. If you're not sure about how to write out this plan, you should look for any local business bureaus, employment centres, any place that specialize in helping business owners, emerging or veteran for consulting help. You should be able to get help with your business plan, plus workshops on all related-matters on business operations and they're mostly not-for-profit organizations so their services are free.
- If you do need the extra money/loan from a third party, make sure that you understand the conditions of having that loaned money. In the case of using credit cards or your local bank branch, you're required to pay back eventually the same amount you've borrowed. If that takes a long time to pay back, you'll have to also pay interest as a percent rate fee for any period of time (e.g. monthly) for still having that money still on top. Depending on much you can pay down the capital (borrowed money amount) between these periods, it's ideal that you pay down the most you can afford to avoid paying extra money on un-necessary monthly interest fees.
- As I understand it for Canada, you are required to sign up for a permit to operate a business in the country. Why? You'll be making an income within the country for one and earning any money in that country via your business is all subject to being deductible for taxes (the government's pay wage to cover its own overhead of all its services and activities in a sense). This permit would be good for up to 5 years as I'm told and this should make you eligible for government benefits too. You would receive a business number that the Canada Revenue Agency can keep track of your tax payments, both for income and GST/HST.
- There are several places that you can get the paperwork done to get this initial permit. Business bureaus do offer the service of registering your business on your behalf, taking care of the paperwork for you after you provide key details of your business plan I imagine. There is also online registration with the CRA that take care of the country's taxes. I personally find seeking out the right forms a bit confusing on their official site but the CRA is where these forms are sent to, so they can identify you as legitimate.
- To get this permit isn't free; depending on who you get to fill/send the paperwork with, you're going to pay a fee for both the forms and labour of processing it. At minimum for here in Toronto, Ontario for example, it costs $60 by electronic registration and $80 by paper registration. Some places will charge extra on top of these fees for registering via them.
- You may need additional permits that may come with their own fees, depending on how you'll sell your work (as products at a vendor stall on the streets for example). In every area that your business is going to involve, be sure to check for any requirements that the government will have a hand in. It's best that you and the government work together via the proper channels to help each other out as you both bring in benefits for the other and self.
3. Running the business: Keeping Score on everything
- As you do your craft, you'll be making transactions on trade of goods with money and vice versa when you need some goods. While it can get confusing to keep track on who owes what, it's essential that you make a record on everything. Good bookkeeping or accounting skills will practically save you here when it comes to double-checking on what's been done for clients, who have yet to pay, but mostly for when it's time to do your tax reports (for some, this can be more than annually). Whatever way you go about recording everything, be it by notebook, online banking or filing receipts in categories, keep a copy of every paycheque and expense that occur in each fiscal year (financial year concerning the government) of your business. This is in case of any inaccurate calculations or need of "proof of purchases" on your tax reports and to avoid being audited hopefully.
- While you DO have to pay part of your income towards taxes, there's no fixed decimal percentages nor flat rates to what amount you'll need to pay each year. The government won't ever charge you for taxes in greater amount than what you make (which means you should carefully not spend too much of your income). Experimenting with an app called TurboTax Refund Calculator, it showed that the income tax rate slowly increase in decimals the higher the annual income gets. In some provinces, you can make close to $10,000 without being taxed for it but you still need to report that to the CRA. In addition, the government will actually refund to you some of your income if you haven't made enough to be taxed. Whatever amount of income you make via your business, it's smart business sense to save part of it for taxes, like for health emergencies.
- Other than for paying income tax, you'll eventually need to charge your clients GST/HST and/or PST (for products) along with your service bill. You can only charge these taxes to clients residing within the same country as your workplace if you work globally. In Canada, this is included with your business number, with its own number adjoining. You can voluntarily register for your GST/HST number beforehand; the minimum amount of made income required to pay for these taxes are $30,000. If you make this much within a year, you must get registered and begin charging the GST/HST rate with your service bill (.05% for GST, .07% for PST and .13% for HST (the GST and PST joined together)). If you make the $30,000 within just a quarter of the year (that's a 3-month period), you're required to register soon afterwards (I think you may need to also report in your income on a quarterly basis if this happens repeatedly). I think too if you were to sell your work as products, you'll have to register for your PST number beforehand (when in doubt, ask the experienced). Again, it's a good idea to save part of your income for the sale taxes along with your income tax.
- Taxes aside, you may sell your work via reps, galleries or online print/novelty stores. Since this is where you're using a service of another business to do business, the third party will likely charge you a commission rate or flat fee from the sale of your product via their service usage. I think you might have to consider adding the sale taxes of the country that the third party's business resides in with the bill (need to research that further). Much about estimating the cost of production, along with commission fees, sale taxes and shipping & handling (O.o) in your billing should be part of the research you did for your business plan.
- Lastly, you're going to pay some of your income towards government services like Canadian Pension Plan and Employment Insurance (need to research this some more too). If you're working with others like partners or employees, you'll need to register for a payroll number (one for each employee) along with your business number. This means to also part some of your income toward your employee's salaries (not going to be looking further into that for now).
- Now for the good stuff. When you made a low income for your fiscal quarter/year, the government will refund some or all of your income as you're likely going to need it for overhead cost and cost of living. In Canada, you can also have your GST/HST refunded quarterly to you. In addition, it's possible to write-off (get refunded) on most of your business expenses come tax report time. Some expenses can only be refunded in partial percentages and others 100%, depending on certain conditions. If you don't know know which ones for how much, hiring an accountant or accounting service can help you get the most income back on your tax refunds. Be sure to keep hold copies of your transaction records and organized into categories (e.g. food, workplace equipment, travel, etc.); your accountant will bless you for the effort and you can avoid better the risk of being audited for inaccuracies.
Well, that's about everything I know as far regarding my business research. This might be enough to know to just start freelancing the way I am right now; I can't help but feel that I'm still missing some crucial information on this matter. It might be just my nerves getting the better of me.
Anyways for those who are looking for information on starting a business or freelancing in Canada, I hope that this was helpful. If you know more information about the topics or see anything incorrect, please feel free to comment or give me feedback for my continuing research. There are more official sites that you can visit for the latest information regarding business registration:
The Canadian Revenue Agency:
Canadian Intellectual Property Office:
City of Toronto - Doing Business: