Summary of Sole Proprietor in Canada Q&A - Things to Know If You're Self-Employed

The video "Sole Proprietor in Canada Q&A - Things to Know If You're Self-Employed" by Jessica Morehouse provides practical advice and clarifications for Canadian sole proprietors and self-employed individuals on managing taxes, benefits, business registration, and banking.

Main Financial Strategies and Business Insights:

• Employment Insurance (EI) for Self-Employed:
  • Self-employed individuals are not automatically enrolled in EI; enrollment is voluntary.
  • EI special benefits include maternity, parental, sickness, family caregiver, and compassionate care benefits.
  • Eligibility requires being registered for at least 12 months, meeting minimum earnings, and other conditions.
  • Jessica personally opts out and instead maintains a robust emergency fund to cover such risks.
• Canada Pension Plan (CPP) Contributions:
  • Sole proprietors pay the full CPP contribution (10.9%) on net business income (gross revenue minus expenses and exemption).
  • CPP payments are included in the income tax payment, not paid separately.
• Business Registration:
  • You do not need to register your business if operating under your legal personal name.
  • If using a trade name or different business name, registration is required to receive payments and get a business number.
  • Registering for GST/HST automatically provides a business number.
• Reporting Income:
  • All self-employed income must be reported to the CRA, starting from the first dollar earned.
  • Avoiding reporting is illegal and considered tax evasion.
  • The mindset should be focused on profit and compliance rather than avoiding taxes.
• Health and Other Insurance:
  • Self-employed individuals lose employer-provided benefits like dental, life, disability, and critical illness insurance.
  • Options include purchasing private insurance (which can be costly) or self-insuring by saving money independently.
  • Government healthcare covers basic medical needs but not prescriptions, dental, or optometry.
• Business Banking:
  • No special business bank account is required if operating under your legal personal name.
  • It is recommended to keep business and personal finances separate for easier tracking (e.g., separate credit cards/accounts).
  • If operating under a registered business name and accepting checks, a business bank account is necessary.
  • Payment gateways like PayPal or Stripe can be linked to personal accounts if no checks are involved.
• Financial Organization Methodology:
  • Jessica recommends the book Profit First for managing business finances, which advocates setting up multiple bank accounts to allocate money for profit, taxes, expenses, and salary systematically.
• Professional Support:
  • Using an accountant is highly recommended to simplify tax filing and provide expert advice.
  • Jessica emphasizes that accountant fees are tax-deductible business expenses.

Methodology / Step-by-Step Guide Highlights:

• Evaluate whether to enroll in EI based on personal circumstances and benefits needed.
• Calculate and pay CPP contributions as part of your tax return.
• Decide if business registration is necessary based on your business name usage.
• Always report all self-employed income to the CRA.
• Choose between private insurance or self-insurance for health and other coverage.
• Maintain separate financial accounts or credit cards for business expenses to simplify bookkeeping.
• Consider reading Profit First for a structured financial management approach.
• Engage a professional accountant for ongoing tax and business advice.

Presenter:

• Jessica Morehouse, small business owner, entrepreneur, and personal finance content creator.

This summary captures the key financial strategies, legal obligations, and practical tips for Canadian sole proprietors shared in the video.

Category

Business and Finance

Video