pac_les_man

I am considering going self employment, and want to understand the tax burdens to see if it's worth the trouble. Appreciate any tips and guidance.
The whole province+federal, thresholds and deductibles are a bit confusing (or doesn't seem as straightforward to a newbie as UK).

1. My client/s are in US - from what I've read this disqualifies me for deductibles?
2. I will base it out of BC, but if Alberta is much more friendlier, I will consider that.

Thank you

Pulaski

I know almost nothing about US-Canada international taxes, but you might want to consider forming a US LLC, which would require a US tax return, but would allow widespread deduction of expenses. Only someone with knowledge of US and Canadian taxes, and your business model, could say if that would be best for you.

I would strongly recommend a consultation with an accountant experienced in cross-border businesses before you make any concrete plans as your decision could have a substantial impact on your net income.

pac_les_man

Thank you. Will look to find an accountant with US-Canada knowledge.
Another option is to get paid through a Canadian 3rd party - would this make it simpler? for small business deduction etc and hit the lower rate.

Hemlock

For small business, especially dealing in the US, a corporation can help limit liability and personal risk. There is not a lot of tax advantage to a corporation unless holding capital within the corporation, as corporation tax is lower than personal tax.You still pay personal tax when taking money out of the corporation and deduct as an expense when taking money out. What tax and how much depends on how you take money out of the corporation.
Not sure what led you to believe you cannot deduct expenses. Wherever your income is derived, as a Canadian tax resident you pay taxes and any costs in earning the income are deductible.
I have worked for US clients and sell products to the US, I bill the customer, they send me a cheque. Any business expenses I incur earning that income are deductible. I have never seen a need to incorporate in the US as I do not have a location in the US, I operate from Canada and travel to the US or ship products to the US from Canada.
There are many reasons to incorporate and many to not. When we incorporated we had accounting and legal advice.
Avoid making a simple situation unduly complicated.

pac_les_man

I think my question is mainly about SBD eligibility (not business expenses). I've done a bit more reading after you comments. If eligible for SBD (9% federal corp tax + 2% in BC) is very attractive, compared to 15% fed + 12% BC. Like I was thinking this could be the difference in going self employed or not, but the US client scenario doesn't seem to make a difference...

Corporation tax rates - Canada.ca
T2 Corporation – Income Tax Guide – Chapter 4: Page 4 of the T2 return - Canada.ca

Hemlock

[QUOTE=pac_les_man;13180966]I think my question is mainly about SBD eligibility (not business expenses). I've done a bit more reading after you comments. If eligible for SBD (9% federal corp tax + 2% in BC) is very attractive, compared to 15% fed + 12% BC. Like I was thinking this could be the difference in going self employed or not, but the US client scenario doesn't seem to make a difference...
/QUOTE]

Self-employed is a partnership or proprietorship. In a corporation one is a shareholder and employee.Corporation tax is totally separate from employment income. The corporation pays tax on profits. Shareholders, who are employees draw money out as salary, that is income for the individual and taxed at the personal rate, this then becomes an expense for the corporation. Still attracting tax, CPP, EI and WCB. Can also be drawn as dividend, but CRA pretty much have it sown up so tax is not really a lot less. If you retain cash in the business, not taking it out, incorporating can be beneficial, however CRA also look at that. Professional advice when considering such a move is a wise decision in my view.

dbd33

Is this a personal services business, such as computer consulting?

pac_les_man

Yes. IT services.