Accountant for New Westminster consultants

Incorporating: when it pays and when it does not

A sole proprietor pays personal tax on all of the profit, every year, whether or not it is spent. A corporation pays the small business rate on active income, BC 2% plus the federal rate, and the owner pays personal tax only on what is taken out. The saving is a deferral, and it only exists for the money you leave in the company.

So a consultant who spends everything they earn gains little from incorporating, and takes on a T2, a separate bank account and corporate records. A consultant earning well beyond their living costs, or planning a large purchase, gains more. The incorporation calculator runs both cases, and incorporating in BC covers the steps.

One client that looks like an employer

The risk unique to consultants is the personal services business. If your corporation has one client, you work set hours under its direction, use its equipment and would be an employee but for the company, the CRA can treat the corporation as a PSB. It then loses the small business deduction, pays a higher rate, and can deduct very little.

Having a single client is not enough on its own to create a PSB; the whole relationship is weighed. Several clients, your own tools, a real chance of profit or loss and control over how the work is done all point the other way. Review the contract before you sign it, not after a reassessment. The PSB risk assessment walks the factors, and PSB risk explains the consequences.

GST registration and the $30,000 test

Consulting fees are generally taxable for GST. Registration becomes mandatory once taxable sales pass $30,000 in four consecutive calendar quarters, and from that point GST is charged on your invoices. Many consultants register earlier, because registered businesses recover the GST on their own costs as input tax credits.

BC PST does not generally apply to professional consulting services, so most consultants register for GST only. PST still applies to taxable goods and some software you buy. A small consulting practice usually files annually, which makes setting the GST aside monthly sensible. The Quick Method may suit a practice with few costs.

The home office in a condo or an older house

Most New Westminster consultants work from home at least part of the week. A sole proprietor claims a share of rent or mortgage interest, strata fees, utilities, insurance and maintenance on the T2125, based on the space used regularly and exclusively for the work, or used as the main place of business.

Inside a corporation, the cleaner route is usually a reimbursement from the company for the business share of home costs, supported by the calculation. Strata fees and rent count; the condo itself does not. See home office costs for incorporated owners.

Paying yourself, and the year-end

A corporation pays its owner by salary, reported on a T4, or dividends, reported on a T5. Salary creates RRSP room and CPP pensionable earnings, and requires a payroll account and remittances. Dividends need no payroll, but build no RRSP room and carry no CPP. The salary vs dividends calculator compares the two.

The T2 is due six months after year-end, and any balance two or three months after. Money taken out without a decision lands in the shareholder loan account. See corporate tax in New Westminster and the owner’s personal return.

Records the CRA expects to see

A consulting practice has few transactions, which makes each one more visible. Every invoice should show your GST number once registered, the client, the period and the work. Every expense needs a receipt, kept for six years. Software subscriptions billed from outside Canada need checking for GST, since some are charged and some are not.

Travel to a client site is deductible when your home office is your principal place of business; travel to a fixed office you report to every day looks more like commuting. Professional dues, training and liability insurance are deductible. Mixing personal and business spending on one card is the most common problem we fix. A separate account and card for the practice, from the first invoice, solves it. See separating business and personal finances.

What EverStone handles for you

One CPA, one fixed fee agreed up front:

• The incorporation decision, run on your real numbers
• Contract review for personal services business risk
• GST registration, invoicing and the annual return
• Bookkeeping, monthly or quarterly
• Salary, dividends and the year-end T2
• The owner’s T1, with instalments planned

A self-employed T1 with schedules is commonly $250–$450. An incorporated practice is quoted after a free consultation. See pricing, or ask a single question through an advice session at a flat $200 + GST.

Remote accounting for consultants from Abbotsford

EverStone is a one-CPA firm based in Abbotsford, serving New Westminster consultants entirely online. There is no New Westminster office and no local staff. Meetings are held by video, documents come in through a secure upload link and are signed by e-signature, and no visit is required at any point. For a consultant who already works remotely, it is the same rhythm as the rest of the week.