FROM THE SUCCESS PEOPLETM
Business Tax Advice For Married Business Owners | Mom ‘n’ Pop Business Tips
Some of the biggest companies in the world started as ‘mom and pop’ operations: Fiji Water, Forever 21, Panda Express- even Walmart is a family business (the ‘Wal’ comes from Walton.) For those of you starting a business, your spouse is an obvious choice for business partner: you trust them and you know that you can work together, but you need some business tax advice.
Just as starting a business and getting married have unique tax implications, starting a business with a person that you’re married to has unique challenges that, as a Bonnyville and Cold Lake small business accounting company, we can help with Business Tax Advice for Married Business Owners.
As our client, you would have access to responsive, personalised service that we would tailor to your personal circumstances, but there are a few things that apply to everyone starting a business with their husband or wife:
I Take Thee…
The first thing to do is define your partnership. If you’re starting with nothing but your savings this can be as easy as just saying that you’re business partners- we would recommend putting something in writing, even if it’s as simple as ‘Dick and Jane own 50% of the business each’, and having this contract notarised by a notary public. After that, you file your taxes like any other self-employed person.
If your business has more than $2 million in cash or $5 million in assets, firstly, congratulations, and secondly, remember to file a T5013 Partnership Information Return form. This lets the federal government know that your partnership exits and how it works.
Filing Your Half of Your Company’s Taxes
Now that your partnership is defined, you are both self-employed and will have to complete Form T2125, Statement of Business or Professional Activities every year, even if you still have a day-job. You’ll use the information from form T2125 to fill in lines 135 to 145 of your annual tax return.
One great advantage of being self-employed is that anything business-related can be written off as a business expense. Having a business partner complicates this a little: whose tax return should your office stapler go on? Who gets to claim the coffee machine as a business expense? You’ll need to make sure that you don’t claim the same item twice- this is something that could be flagged as fraud in the case of an audit. The complexities of splitting business expenses between partners are a good reason to get an accounting firm like ourselves to take care of this part of your tax-filing.
GST Payments and Rebates
If your business makes more than $30,000 per year you are required to charge GST on your goods or services. You’ll also need to register for a business number by filling in form RC1 or going to the CRA’s Business Registration Online service. You’ll only need to do this once, and as soon as you do you’ll have access to the BRO’s website, which allows you to track your GST payments and payroll and import/export taxes if they’re relevant to your business.
Breaking Up Is Hard To Do
Half of all marriages end in divorce, so even though you might not want to think about it now, when you form a business it’s important to agree on what happens if you split up. Will you walk away with 50% of the business each? Will you continue to own the business? If you’re drawing up a contract before beginning your business, which is highly recommended, then this sort of information needs to be on it.
Canadian law states that any assets acquired during a marriage must be split equally between partners in the case of a divorce. This law is used mostly for assets like houses, but it applies to businesses too. You may opt to dissolve the business and both take an equal share, keep the business going or have one partner buy out the other. Make sure that you understand the tax implications of selling your stake in a business: the proceeds will be taxed as capital gains, not regular income.
“Forget a relationship, let’s make it a partnership and build an empire together”
A marriage can be a solid foundation for a business or a liability; like so much about running a business, you’ll only find out by doing it. We’re always willing to help ou with Business Tax Advice- there’s a lot more to running a business as a couple than we can cover here. If you’re ever unsure, or you just need advice, come visit KAFT CPA: The Success People and book your FREE 30-minute Sucess Check.
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