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August 20, 2017 | Think Small

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


A few years ago, books being what they are, my long-time publisher (Key Porter) went bust. No big surprise. This industry has lived on government handouts for years. A ‘best seller’ in this land is a piteous 5,000 copies, and who can make any money on that?

Not writers. They’re lucky if a buck-a-copy materializes. Editors, printers, distributors, retailers and lawyers all make more. So, mama, don’t let your children grow up to be authors. Besides everybody now goes online to read, and they expect free. Like this pathetic blog. Worth every cent you pay for it.

Being a slow learner, I wrote another book a while back (the 15th) and decided, given my publisher’s croaking, to do the thing solo. What, I wondered, was preventing me from hiring my own editor and designer, from contracting the printing company, having tens of thousands of books shipped to my garage, then selling them online with a digital pay system and my friendly Canada Post office to fulfill orders? Nothing, actually, except a whack of upfront money. So I did.

Well, not exactly. Dorothy did.

Since I was a slave-employee at the time, and she was not, my wife set up a sole proprietorship and accomplished it all. For six months the kitchen was several feet thick in books, labels, cartons and mailing envelopes. Financially, it was a no-brainer. The profit on every book she sold equaled the return on fifteen sales by the old publisher. And no waiting six months for payment. Her SP bank account was credited before a package shipped. Sweet.

When all the books were gone, and the floor reappeared, she shut the business down, closed the business bank account, sent the HST cheque in and stopped referring to me at dinner as “The Supplier.”

With the Trudeau gang about to drop the hammer on small business incorporations, it’s worth remembering there are alternative structures, like a sole proprietorship. Incorporating a company costs money and maintaining it necessitates forking over substantial accounting fees. Once set up, companies are hard to dissolve, and constantly subject to a changing kaleidoscope of government regulations and strictures. As for limited liability – believing a company can shield you from business-related lawsuits – that’s largely a myth. If someone wants to whack you, they’ll name officers, directors and owners along with a corporate entity, and often find sympathy from the courts.

In contrast, a SP can be set up in 15 minutes or so, online, cost virtually nothing and still give you trade name protection. No special accounting costs, either. All revenue is added to your personal income and expenses are deducted from it. You pay tax like everyone else, but unlike salaried employees there’s no withholding tax and everything you use to earn revenue – from staples to travel to clothes and a portion of your house – can be written off. Employees may be hired, along with contractors and suppliers. When the project is over, just wind ‘er up.

Taxes? Paid at the normal rate, determined by the profits your business actually made. HST has to be collected if the enterprise books more than thirty grand a year – but you also don’t pay any sales tax on stuff you buy. All of it’s deductible as an input tax credit.

So a sole proprietorship is simple, quick, robust, effective and cheap. No, you cannot do fancy stuff like income-split with your newborn, claim a capital gains tax exemption when you sell, issue preferred shares to friends, enjoy a lower tax rate on retained earnings or pay yourself in tax-advantaged dividends. But a lot of those historic advantages of incorporation are about to be blown up by people who understand how to get elected, but know not risk.

SP entrepreneurs usually don’t score business loans, either, so be prepared to borrow against your house or cash in an RRSP to secure initial funding. You’ll also need a separate bank account for the business, a good bookkeeping program, and a stomach for risk. Profits are personal income, but losses are personal, too. You’re responsible for every bill and debt, as if they’d been incurred running the household.

When should you incorporate? Probably when revenues are in the hundreds of thousands a year, and recurring, when you’re hiring a bunch of folks, acquiring real estate or other big assets, or your spouse can no longer find the fridge and wants you out. Also, obviously, when we all know what T2 is about to do to kneecap the men and women who played by all the rules, stomached risk and rolled the dice of small business ownership.

Living small. The new big.

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August 20th, 2017

Posted In: The Greater Fool

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