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Discussion Starter #1
Hello,

I have a few general questions, in no particular order. These questions deal primarily with "what in the world am I to expect?" scenarios. I haven't been able to find concrete answers online and I was hoping for some general input on the situation.

I am a Software Engineer and I am hoping to start a company. I am not looking to be 100% self employed. Just something on the side that I can dedicate my evenings and weekends to. Of course I could do this without having a company registered to my name. In fact I have been doing some contract/freelance work online (nothing major, few bucks here and there) for the last 5 years. But I decided that instead of doing it under my name, I could get all fancy and start a company.

1) I am not looking at a lot of income. Maybe $500-2000/year - I should still be filing the T2125, shouldn't I??

2) I understand that things like rent and vehicle are deducted based on use (i.e. 20% area used, only 500km/year travelled, etc), but what about things like Internet and cellphone. Those are constant services on which I rely for work. Am I expected to claim a 2minute/day phone call??

3) Considering my income would be miniscule, is it okay that my expenses would be marginally larger than income? I mean, if I am earning $50 on a project and it costs me $100 in internet, phone, travel, etc costs... that's okay, right? (well not from a business model perspective, heh)

4) How to track? This part is what's been stopping me from starting a company for the longest time. Do I need to start my own sort of general ledger? Write up invoices for projects? If I meet for a coffee with a client, should I keep that $3 coffee receipt? And most importantly how do I file it? Staple and send it off? Or does CRA work on a "I believe you, honest citizen!" model? So in summary, how is income/expense proven? What kind of extra work/records do I need to not get in trouble?

That's about all the questions I can think of for now. I've been looking at starting a company this entire evening and I think I need to sleep on it. But I am hoping to get some input, perhaps from some people in similar situations (low-no profit company they use to conduct occasional business)
 

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1) Yes

2) You can claim an amount proportional to your use for the business, assuming you pay the bills yourself. It is obviously an estimate, but be reasonable.

3) It will be okay for the first couple of years, but you must have a reasonable expectation of profit now and in the future. It all you do is post losses, year after year, the CRA will not accept your business losses as deductible against other sources of income.

4) You can rent a program like QuickBooks for $10 a month on the cloud, or make invoices and track expenses in excel. Keep all receipts.
 

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Discussion Starter #3
1) Yes

2) You can claim an amount proportional to your use for the business, assuming you pay the bills yourself. It is obviously an estimate, but be reasonable.

3) It will be okay for the first couple of years, but you must have a reasonable expectation of profit now and in the future. It all you do is post losses, year after year, the CRA will not accept your business losses as deductible against other sources of income.

4) You can rent a program like QuickBooks for $10 a month on the cloud, or make invoices and track expenses in excel. Keep all receipts.
That pretty much answers it! Thank you very much!!
 

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#3: you may want to cap your expenses at income, ie, zero net income. If you are not sure on the longevity of this business, at least it will keep you off the CRA's radar.
 

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Discussion Starter #5 (Edited)
#3: you may want to cap your expenses at income, ie, zero net income. If you are not sure on the longevity of this business, at least it will keep you off the CRA's radar.
So

- Income > Expense = good
- Income == Expense = okay
- Income < Expense = bad

Gotcha! I would imagine some loss is expected in the first year assuming it's justified (i.e. one time equipment purchases, etc)

Right now my main worry is not having the right papers/proof for when the tax return time comes next year.

Few follow up questions:

5) I should keep all receipts as proof. Don't need to submit them, but just as proof in case of audit?
6) Have proof of income? If some guy in Australia wants to buy my services/product and pays me $100, do I need to have some kind of official transcript of that? Bank statement? Digital copy of "I paid. Signed, Australian"?

I guess my question is, how involved do I need my clients to be? How "legally fancy" does it have to be? I not thrilled having to draft a 10 page contract and terms of service for a $5 job for someone on the other side of the world. I would of course write it down somewhere saying "this job, this day, this long, this much."

7) Also, what about trades? Are they different from income? i.e. For doing a $5 job, I got a $5 Dollarama gift card.
 

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5. Definitely. Keep everything for I think 7 years in case of audit.
6. That's harder to judge. If you don't want to ask your client's for a bill, perhaps you have some other trail to prove income? eg, email exchange? How would they pay you? You could always photocopy the cheque before depositing, or keep your bank statements and note the transfers as income.
7. I don't know for certain, but I would assume it would be considered income.
 
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