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If you are a Canadian resident content creator, you may be aware that the tax season in Canada is in late March. If this is your first time filing taxes, you may have some doubts. We will try to explain here how taxes work in Canada and how to deal with this. This article will focus mainly on Canada but if you are an American content creator, you may use the information, just adjust it to your local tax bylaws.

DISCLAIMER: This is only a guide that pretends to give an insight. If you have a doubt, please consult with a professional.

The Content Creator Business Structure in Canada

The CRA defines different profit business structures, but we, as content creators, are only interested in the following:

  • Sole Proprietorship
  • Incorporation

We will describe them and tell when is best to go or one or the other.

Sole Proprietorship and the Content Creator Business

A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. The earnings and spending are going directly through your personal income tax declaration. You are the business. Independent contractors, such as Winko and Onlyfans content creators, are sole proprietorship owners.

It is totally optional to register a sole proprietorship with a business name. You are allowed to use your name as the business.

The same happens with the HST, if you are under the 30,000 Canadian dollars quarterly threshold, registering for an HST number is totally optional.

Advantages of a Sole Proprietorship vs an Incorporation in the Content Creation Business

The most notable advantages are:

  1. The most notable advantage of a sole proprietorship is simplicity. With a sole proprietorship, you only file your taxes once a year; remember you are the business.
  2. Able to write more; as a sole proprietorship, you will be allowed to write off any item you purchase to generate income, such as clothing, sexual toys, cellphone, digital camera, computers, webcams, lighting, props and even some household items. The key here is being able to demonstrate that whatever you write off is used to generate an income.
  3. If you already own a vehicle, you can write off part of its maintenance (including gas).
  4. If you have a specific area in your home that you use only to create content, you can write off a proportional part o the household expenses (power, heat, water, internet, even cellphone bill).

This is not really an advantage, but it is good to know. If you opt in to register for an HST number there are a few advantages. The most notable is you will be able to transfer the HST you pay when you purchase new items. If you don't register an HST number, you will have to absorb that tax (5%, 13%, 14.95% depending on where you live). For example, lets pretend you buy a new vibrator and you pay 100 $ + 13$ (HST) = 113 $C. If you don't have an HST number, you can only write off 100 $, and you will have to absorb those 13 $.

You do not need to register for a payroll number. Again, a sole proprietorship is the simplest way to file taxes.

Disadvantages of a Sole Proprietorship vs an Incorporation in the Content Creation Business

As it was stated before, in a sole proprietorship you are the business, therefore there are a few big disadvantages that can be worked around with proper planning.

  1. Your person is liable if your business faces any kind of sue. If your content creator business goes wrong and you had the bad luck of having an issue with a very angry customer with the means to do a legal pursuit, you are affected directly.
  2. Your income affects directly your tax benefits. As you know, Canadian tax benefits such as child support and Trillium are based on taxable income. The more you earn, the smaller your government benefits are.
  3. You may be in financial trouble when paying taxes you don't organize yourself. Because you are not an employee, the income you get doesn't have any kind of retention (taxes, CPP, EI) therefore if you spend all the money you have, and you have to pay taxes after filling them, you may be in a situation where you do not have enough money. This is easily preventable if you just save 30% (worst case scenario) of your income if it happens you do not need to pay that much, you will have a saving.
  4. No retirement play. This could be an issue in the long run. Most content creators do not realize that RRSP is an excellent tool and they do not plan anything for the future. As a sole proprietorship, you have to do voluntary contributions. The good news is that those contributions help to reduce your income.
  5. Difficult to get access to financial instruments. If you are looking forward to having a credit card, buying a house/condo, buying an automobile or a line of credit you will have to deal with a bank or a lender. Financial institutions are more strict with sole proprietorship owners than with employees. Therefore you have to file taxes with higher income which may impact your government benefits.
  6. Income taxes are higher if you compare them against an incorporated business.

Another thing that is good to know is about having an HST number. You will have to charge HST to any income from any Canadian customer. Meaning, that your prices will increase.

Incorporation and the Content Creator Business

Incorporation is the legal process used to form a corporate entity or company. A corporation is the resulting legal entity that separates the firm's assets and income from its owners and investors. Incorporation is a totally separated entity from you, and to the eyes of the CRA, you must be an employee of your incorporation (even if you are the CEO of it, you are still an employee of the incorporation).

Incorporations must register a name, an HST and a Payroll number.

Advantages of an Incorporation vs a Sole Propiertoship in the Content Creation Business

If you decide to go for an Incorporation, you will find the following advantages:

  1. Your person is not liable. Incorporations are totally independent identities; in the unfortunate situation of being a sued, your person won't be affected, only your business.
  2. You can manage to keep your income low to maximize your government income. This is somehow tricky, but if you do it right the reward is big. Pretend your content creation business is doing good, you are doing more than 100,000 $ a year; if you weren't incorporated, your government benefits would be next to zero. With incorporation, you can pay yourself enough to do a living whiteout losing your government benefits.
  3. Because of the way incorporation works, you must be an employee of it; meaning you have to generate a paystub and make the basic employee retentions. For the most part of content creators, this maybe be a relief as the money they get in the pay stub is after taxes, no need to save because of it.
  4. There is a retirement pension because your incorporation pays CPP, you are entitled to a pension when the time comes.
  5. It is easier to have access to financial instruments. To the eyes of a financial institution, you are an employee. You will find that requirements are more relaxed if you compare them against a sole proprietorship owner.
  6. Income taxes are lower than a sole proprietorship.
  7. The ability to pay you dividends instead of salary. When you get dividends instead of a salary, the incorporation pays the taxes of those dividends, which are lower, you do not need to pay EI or CPP either, which may backfire in the long run. However, you may have the best of both worlds: get a minimum salary and pay the rest in dividends.
  8. If you have an area in your home that you use exclusively to create content, you can bill your incorporation rent. Therefore, you can write off household expenses of your home (power, heat, internet, cleaning supplies and others).
  9. Because the incorporation can pay in full some items, you can lower your salary, which could maximize your government benefits. You have to do numbers to find the right balance.
  10. If you are doing more than 100,000 $C a year, incorporation will help you to save money in taxes.

Disadvantages of an Incorporation vs a Sole Propiertoship in the Content Creation Business

Besides all the good points, there are some points you must know regarding having incorporation.

  1. You have to file taxes twice: one for you as a person, and another for the incorporation. You must know that incorporation taxes are more complex than personal ones. You will have to pay a professional or do a lot of reading to do it yourself.
  2. Satisfy more government requirements such as doing records for the board of directors, filing an annual return, filing HST returns and more.
  3. You have to pay CPP or EI twice. The employer, in this case, the incorporation, has to do another CPP and EI contribution that is not recorded in your pay stub. Because you are the owner of the business, this means double of the things.
  4. You can't write off too many things as you may do in a sole proprietorship. When you incorporate your business, you have to declare the kind of activity you will do. Content Creators usually declare multimedia related, therefore it is difficult to include some items such as blankets (for example).
  5. If you own a car, you can still write off if you do business travels, but you have to do records that will allow the Incorporation to pay you back the expense.
  6. Incorporation requires you to register or a payroll number, otherwise, you won't be able to pay yourself and do personal expenses (such as food, movies, restaurant, non-working clothing, etc). You also need to register for an HST number, meaning you have to charge the tax to all Canadian customers. If you do not do that, you will have to absorb it.

Which Approach Should I Get?

If you are doing more than 100,000 $C a year in your Content Creation and you want to maximize your income and minimize your taxes, it is strongly suggested to go for incorporation. Otherwise, continue with a sole proprietorship.

What Records to get to do your Personal Tax Return?

Regardless of what path you take, you will have to do your personal tax return anyway. You will have to get the following records before filling in:

If you are a sole proprietorship owner:

  • any expense you can directly link to the content creation business without including the HST,
  • automobile expenses (gas, maintenance, parking) if you ever do a business trip,
  • total of kilometres done in your car, and a total of kilometres spent on business trips (an approximation),
  • restaurant expenses if you ever do a business trip (note that restaurant expenses can't be written off at 100%, but it is better than nothing),
  • household expenses (such as power, heat, water, electricity), if you have a dedicated, are to create content,
  • the proportion of the house if you use to create content only,
  • T5 slips from any financial institution you may be doing business with,
  • T4 from any other employment you may have,
  • records of your sales from selling content without including HST.

If you are doing your tax return yourself, you can do it with software such as the Sole Propiertoship Edition of TurboTax. It is not for free, but it may be your most affordable choice. Ha! You can write off this payment as well.

If you are doing the incorporation:

  • T4 and/or T5 from your incorporation and any other employment you may have,
  • rent income if you are renting a specific space to your incorporation,
  • household expenses if you are renting a specific space to your incorporation,
  • T5 slips from any financial institution you may be doing business with,

If you chose to file your personal taxes with this route, you will find they are quite simple. The standard edition of TurboTax will do it, it is quite affordable and very easy to do.

What Records to get to do your Incorporation Tax Return (aka T2)?

If you are doing the incorporation path, besides doing your personal tax return, you will have to do an incorporation tax return. You will need the following records:

  • all your expenses without including the HST (including any refund your incorporation may do to you (as an employee) such as automobile gas or restaurants),
  • any rent receipt if your incorporation pays rent to you for an exclusive space to work,
  • T4 and/or T5 your incorporation gave to the employees (you as an employee),
  • T5 slips from any financial institution your incorporation may be doing business with,
  • record of sales without including the HST.

You may need to hire the services of a professional to file your T2. If you decide to do it yourself, you will need special software to do it, such as the Incorporation Edition of TurboTax.

What Records do I need to do an HST return?

HST returns are only necessary if you are a sole proprietorship who has registered an HST number, or if you have incorporation. You will need:

  • records of your income where you charge the HST,
  • records of your expenses where you have paid HST.

HST return is quite simple and you only need totals to input in the CRA portal. However, in case of an audit, you will have to show records to back up your numbers.