Seniors – time for a second career?

The fact that you get the seniors’ rate at the movies doesn’t mean that you are too old to start a new business. If that’s where your passion lies what is the first step on the road to becoming a business owner?

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According to Chartered Accountant Greg Clarke, Partner, SB Partners LLP in Burlington, seniors living on fixed income should guard against unnecessary risks. “Risk is involved in any business, so weigh the pros and cons, and get professional advice.” Chartered Accountant Rob Wormald, Wormald & Company Chartered Accountants in Mississauga, advises prospective business owners on tax strategies and how to organize the business. Why Now? Determine why you want to start a business at this stage of your life and be prepared for a big learning curve. As Clarke explains, starting a business was a popular move for seniors before the economic crisis hit. “Retirement is different now and, even after a long career, some people want to stay involved and do a little dabbling, perhaps as consultants. Others are interested in taking a long-standing interest or hobby and building it into a business. Today, however, some are returning to work to increase income and build financial security until the markets bounce back. “Whatever your reason, you need to understand the compliance requirements and risks involved in small business so that you can properly structure your operations.” Get Information “Before consulting a professional, do your own research,” continues Clarke. “This will lead to a more efficient meeting at less cost, which can be important if you have a fixed income.” Check the websites of the Canada Revenue Agency ( HYPERLINK "http://www.cra-arc.gc.ca" [url=http://www.cra-arc.gc.ca]http://www.cra-arc.gc.ca[/url]) and Department of Finance Canada ( HYPERLINK "http://www.fin.gc.ca/fin-eng.asp" [url=http://www.fin.gc.ca/fin-eng.asp]http://www.fin.gc.ca/fin-eng.asp[/url]), as well as the small business centres operated by many regional governments. “A Chartered Accountant can advise you on specific financial issues. Will you need to charge GST and PST? If your business revenues will exceed $30,000 annually, then you must register for GST. Will you require business insurance as protection against loss or damages? This depends on the risk associated with the business. An engineer, for example, requires errors-and-omissions insurance. “What record-keeping system will you use? Proper records are essential, not only to support the revenue you have collected but also the expenses you will claim against this income,” explains Clarke. Also, it is important to know that if you are operating a hobby business and your income exceeds approximately $66,000, any Old Age Security benefits will be repaid as a clawback on your personal tax return. Business Structure “The form of business organization you choose is critical to your success and good tax stewardship,” advises Wormald. “You can choose to operate either as a sole proprietor or through a corporation. As a sole proprietor, you are in effect your own business, and your income is reported on your personal tax return. One disadvantage of this form of organization is that your personal assets are at risk in the event of a lawsuit.” If you choose a corporate form of organization, certain set-up and maintenance costs are involved. You must file articles of incorporation with the Province of Ontario, which by default is a legal entity. The corporation pays income taxes in a separate corporate tax return filed directly with the federal government. Because it also enjoys a preferred rate of tax on the first $500,000 of net business income, currently 16.5 per cent, there are tax deduction and deferral benefits. The main tax advantages are the tax deferral and potential income splitting. In addition, capital gains exemption will be available if the corporation can be sold - where someone will be the only shareholder, and will spend the money, then a corporation doesn’t usually provide a material benefit. What is Deductible? “Business expenses are tax deductible,” Wormald says, “and this generally covers all expenditures incurred for the purpose of earning income.” These include a portion of business-entertaining costs, interest on debts incurred to earn business income, and the business portion of telephone and Internet expenses. Capital expenses such as office furniture and computer hardware are generally tax deductible by being amortized over a couple of years. “You can also deduct the business portion of car expenses, including gas, repairs and maintenance, insurance, interest, and leasing costs or capital cost allowance. It’s a good idea to keep a travel log for each business trip to support your deductions,” advises Wormald. If your home office is your principal place of business on an ongoing basis, you can write off that portion of your home expenses that pertains to the business, including utilities, property taxes, mortgage interest and repairs. You may also want to investigate paying reasonable fees and salaries to family members in exchange for the services they provide to your business. If you operate as a corporation, other deductions, (other than paying a salary to yourself, which is considered personal income) should be more or less the same as what you can deduct as a proprietor. Another tax strategy is income splitting. And if you are earning business income as a proprietor, or having the corporation pay a salary if incorporated, this means you have earned enough income for an RRSP and thus creates yet another tax-saving strategy.