When you go to register to get your statutory business number both provincially and federally as a self-employed sole proprietor of a privately owned business, professional practice or small farm you need to understand and agree with the information contained herein.
ONE. Congratulations! Not sure you realized it yet but when you got your provincial business registration number and your Canada Revenue Agency HST/GST tax number and your Payroll Withholding Tax number you automatically became an unpaid tax collector for all levels of government.
TWO. You are responsible for everything. Documenting, Collecting, Allocating, Reconciling and Remitting. You are not allowed to make any mistakes or you will suffer significant penalties, back-tax assessments and accumulated interest.
THREE. As a self-employed sole proprietor you are subject to up to EIGHT special taxes. Your CPP premiums will be double the normal rate of other workers – 9.9% as opposed to 4.95%. At retirement you will only receive the same pension as any other workers or even your employees. If you own and occupy a business property you will pay a much higher property tax rate than residential homeowners even though you often receive fewer services.
FOUR. If you have employees, you are responsible for paying FIVE specific taxes that fund the five government-mandated employment benefits: 50% of your employees’ Canada Pension Plan premiums and 58% of Employment Insurance premiums. Also up to Ten Statutory Paid Holidays, Vacation Pay and Minimum Wage must be paid directly to your employees. As a self-employed business person you won’t receive any of these benefits yourself. The cost of these benefits may be increased at any time and entirely new benefits may be created at the sole discretion of any level of government with minimal consultation at best. Depending on the amount of your payroll and your province of residence and operations, you may have to pay an Employer’s Health Tax.
FIVE. These special taxes are supposed to have first priority on your gross revenue and your cash flow. Only what is left over can be used to pay your other business expenses or to meet the needs of you and your family. Even in years in which you might have zero or negative income, you still must pay these taxes — excepting your personal CPP premiums — by dipping into savings or by borrowing money. If you cannot pay these taxes, you face your assets can be seized.
SIX. You may be entering self-employment because you want to be “Your Own Boss.” Please understand that you will now have upward of 20 government bosses otherwise known as government regulators on top of the hundreds and possibly thousands of clients whose expectations you must meet or exceed. They will tell you how to run your business regarding such matters as Employment Standards, Privacy, Employment Equity, Pay Equity, Environment Health and Safety, Workers’ Safety & Insurance, Human Rights, Workplace Abuse Harassment & Violence, Accessibility for the Disabled, Consumer Protection, Payroll Tax, GST/HST, Provincial or City Retail Sales Tax, Corporate Income Tax, Exporting, Importing and Regional & Municipal Bylaws. In addition to this extensive list of generic regulations, you may have to agree to any number of industry-specific regulations as well.
SEVEN. You also will be expected to agree to random visits by auditors, inspectors or investigators from these regulatory regimes. They will determine whether you are in compliance with a myriad rules and regulations. In general, their services are funded by the imposition of fines, penalties and orders to pay. These fines, penalties and orders to pay are just another unexpected expense you must be prepared to absorb as a cost of doing business. (CODB).
EIGHT. The amount of business regulation you face will be entirely unknown. It is up to you to discover what regulation applies to you as there is no central source for this crucial information. As well, there is no control over the total amount of regulation to ensure you are not overloaded. New regulation and changes to existing regulation may occur on a regular basis. In order to operate within the law, you must give regulation priority over the needs of your customers, clients or patients. You understand there is detailed regulatory information on government websites and that much of this information includes disclaimers that the information is provided only for your convenience and that you should consult the actual legislation or engage an expert. Such experts can be quite expensive. You could use government 800-numbers as a substitute for experts. Unfortunately, these call centres sometimes give inaccurate information: the auditor general recently found that 31% of Canada Revenue Agency answers to business and GST/HST phone inquiries were wrong. Always best to hire a really good accountant as the first member on your team of experts.
NINE. You agree to collect taxes for the government — GST/HST, payroll taxes, provincial sales taxes and so on. You understand these tasks are complicated and all your efforts in collecting government taxes are unpaid. And by being an indispensable servant of government tax systems, if you make any mistakes, you will suffer significant penalties, back-tax assessments and accumulated interest.
TEN. Finally, we would like to inform you that, if you should decide to work as a government employee or for a private-sector employee we fully understand. You would not have to pay anyone else’s government-mandated employment benefits. There would be no double CPP premiums, no excess property taxes and no employer health taxes. You would be paid for any work you do in regulatory compliance and tax collection. And, you would never, personally, have to pay penalties to regulators or be subject to assessments for uncollected taxes.
So if you still wish to become a self-employed entrepreneur please remember, self-employment is a choice best made when all the facts are obvious and available. We sincerely hope that this post helps you in this decision making process.
Best of luck with your business planning and forecasting
Next time we will talk about the difference between a small business and a micro-business.