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I have effectively started a small business. The business is an online venture and has already generated a small amount of money through donations/etc. I am currently considering if I want to go further with this venture, or just let it sit. One of my concerns is that if I start attempting to monetize it (taking payments for services, advertising revenue, more donations, etc) I might start having legal issues with having to claim for taxes/etc. I should also clarify, basically all of the money would go to running costs, expanding the project, etc.

I do not expect a high income from this, but I am not sure if I would have to claim taxes on it (e.g. less than $10,000 a year). I am also curious if I spend all the money investing further into the venture (e.g. if I made $1000 if I spent all of that money furthering the project) would I/should I claim it?

Here is what I have considered:

  1. Do nothing, continue the project as I have been (not claiming any taxes, incorporating, etc. Keep extensive records to prove I am not taking any income from this. If it takes off, eventually start using this as a primary income source (at which point start a real business).
  2. Incorporate.
  3. Register for a small business (this would likely be a Sole proprietorship).

2 & 3 have me concerned since I expect it comes with a number of fees, responsibilities, etc. This seems out of proportion considering I doubt I would be making more than enough to simply fund the project.

In addition I should mention that I make more then the minimum un-taxed amount (as I also have a regular job) so simply claiming it on my personal taxes is not preferred (unless you can give a good reason for doing such).

  • Related: money.stackexchange.com/questions/54995/… Although my main difference is do I need to make a business or file taxes for this, versus the benefits of incorporating. – Sh4d0wsPlyr May 19 '16 at 16:37
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    Is there another possibility of running your business as a sole trader? Thus not incurring the larger expenses of Incorporation? In the UK there is a place for businesses like yours which have lower regulation and cost – Marcus D May 19 '16 at 16:41
  • I think the equivalent is a Sole Proprietorship. For my (non trained) understanding it looks like the higher responsibility but cheaper version of incorporating. I would likely lump this into #3 on my list (I will edit for clarity). – Sh4d0wsPlyr May 19 '16 at 16:46
  • Makes sense. Unfortunately, UK seems very different to US (by the one answer given) and CA is probably more similar to US ... So I'll wait for someone more knowledgeable ... – Marcus D May 19 '16 at 17:06
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Normally, incorporation is for liability reasons. Just file your taxes as a business. This just means adding a T2125 to your personal return. There's no registering, that's for GST if over a certain threshold.

There's even a section in the instructions for internet businesses. http://www.cra-arc.gc.ca/E/pub/tg/t4002/t4002-e.html#internet_business_activities

This is the form you have to fill out. Take note that there is a place to include costs from using your own home as well. Those specific expenses can't be used to create or increase a loss from your business, but a regular business loss can be deducted from your employment income. http://www.cra-arc.gc.ca/E/pbg/tf/t2125/t2125-15e.pdf

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I don't know what you mean by "claim for taxes," I think you mean pay taxes.

I'm not sure how corps function in Canada but in the US single owner limited liability entities typically pass the net income through to the owner to be included in their personal tax return.

So it seems all of this is more or less moot, because really you should probably already be including your income sourced from this project on your personal taxes and that's not really likely to change if you formed something more formal. The formal business arrangements really exist to limit the liability of the business spilling over in to the owner's assets. Or trouble in the owner's life spilling over to interrupt the business operation. I don't know what kind of business this is, but it may make sense to set up one of the limited liability arrangements to ensure that business liability doesn't automatically mean personal liability.

A sole proprietorship or in the US we have DBA (doing business as) paperwork will get you a separate tax id number, which may be beneficial if you ever have to provide a tax ID and don't want to use your individual ID; but this won't limit your liability the way incorporating does.

  • So based on what you said - I should likely file the current income on my personal income (regardless) assuming I don't want to do something like incorporate. – Sh4d0wsPlyr May 19 '16 at 17:01
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    I know this is how it works in the US. Money flows in to the corporation. That money experiences various expenses and whatnot. The net is simply passed to the owner for taxation as income. I suspect Canada's limited liability arrangements function similarly; though admittedly I'm speculating. – quid May 19 '16 at 17:07
  • In Canada, "single owner limited liability entities" usually don't flow through to the owner in the manner in which you describe. Our tax laws are different. Assuming that the business does not fall into the "personal services business" trap, which dresses up employment with incorporation, the incorporated business is separate from the personal tax situation of the owner. – user19474 May 19 '16 at 20:24
  • @user19474 how does the owner receive the proceeds of the business? – quid May 19 '16 at 20:59
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    @quid Salary, dividends, return of capital, etc. – Chris W. Rea May 19 '16 at 23:23
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There are two reasons for incorporating a business in Canada - limiting liability and providing some freedom in structuring your taxes. Since you are asking about taxes, I will restrict myself to that topic.

First of all, remember that if you don't make much money, there isn't much tax to save by clever structuring of your affairs. And if you do incorporate, you will pay taxes as a corporation, and pay taxes again on your salary paid from that corporation. It can still be advantageous, because the small business tax rate is less that the higher tax brackets of personal taxes, and you don't have to pay out all of the profit as salary.

If you don't incorporate, you still must pay taxes on your net income from the business. (See brian's answer.) Definitely keep track of your income and expenses, even if you don't plan on making money, in case you get audited. If the CRA wants to call your hobby a business, you will need to show that you haven't made any profit.

I am just giving you a few bits of advice because this subject is complicated. Too complicated for an answer on this site. If you are still interested, go to your local library and get some books on the subject.

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