Pypr Pointers for Canadian Customers

Personal Income Tax:

February 29th 2024:

Deadline to contribute to an RRSP, a PRPP, or an SPP

April 30th 2024:

Deadline to file your taxes. This is the deadline to pay your taxes if you owe the government any money for the 2023 tax year. This includes your personal income tax as well as any GST/HST owed if you file your sales taxes on an annual basis.

Payment for GST/HST collected between January–March 2024 is due if you file your sales taxes on a quarterly basis.

June 17th 2024:

Deadline to file your taxes if you or your spouse or common-law partner are self-employed

Late tax filing penalty: An immediate penalty of 5% on your tax balance owing plus 1% of your balance owing per month for up to 12 months is levied by the CRA.

*Pypr Pointers are just that, and should not be taken as financial advice. Consult a professional accountant (we can connect you to one!) for information pertaining to your exact situation.These Pypr Pointers were provided by CPA & Pypr Partnr Daven F.

Corporate tax returns must be filed within six months after the end of each tax year. 

See the examples below:

• If your corporation’s tax year ends May 31, your filing is due November 30
• If your corporation’s tax year ends July 15, your filing is due January 15

*When the filing deadline falls on a Saturday, Sunday, or public holiday recognized by the CRA, the tax return will be considered filed on time if it is sent on the first business day after the filing deadline.*

Payment date for corporate taxes:

The payments of taxes owing are due earlier than the filing due date. Generally, the taxes owed are due 2 months after the tax year-end.

However, the taxes owing is due 3 months after the tax year-end if the following conditions are met:

• The corporation is a Canadian-controlled private corporation (CCPC)
• The corporation claimed the small business deduction for the current or previous year
• The corporation and all associated corporations had less than $500,000 in taxable income

*Pypr Pointers are just that, and should not be taken as financial advice. Consult a professional accountant (we can connect you to one!) for information pertaining to your exact situation.These Pypr Pointers were provided by CPA & Pypr Partnr Daven F.

One of the most common questions individuals with sole proprietorships will ask is “Should I incorporate my business?” The answer to this is everyone’s least favourite response, it depends.

Sole proprietorship

Let’s first define what is a sole proprietorship. The Canada Revenue Agency (CRA) defines a sole proprietorship as an ‘unincorporated business that is owned by one individual. It is the simplest kind of business structure.’ 

*In other words, if you earn income from self-employment such as content creator or dropshipping  and you have not incorporated, then you are running a sole proprietorship.*

Let’s jump into the advantages and disadvantages of having a sole proprietorship…

Advantages:

• Affordable: Starting a sole proprietorship can have no cost or a minimal cost if a business name needs to be registered.
• Easier and less expensive tax filing: All income is considered personal income for income tax purposes. Hence, only a personal income tax return needs to be filed.
• Less paperwork: With a sole proprietorship there are less annual filings that need to be done and lower reporting requirements.

Disadvantages:

• No liability protection: As the owner of the sole proprietorship you are solely liable for the debts of the business. There is also no legal protection. Therefore, sole proprietors are responsible for legal problems.
• Taxed at a higher rate: Generally, the corporate tax rate is less than the personal income tax rate. Consequently, sole proprietorship can lead to heavier taxes owing.
•  Harder to get financing: The government provides numerous grants and incentives to incorporated businesses but not to sole proprietorships. With a sole proprietorship it’s also harder to secure financing and business credit. 

Incorporation

In simple terms, incorporation is a legal process used to form a company which is a separate legal entity from the owner(s).

Advantage:

• Limited personal liability: The company is a separate legal entity which means the shareholders/owners are not liable for the company’s debts. The shareholders are protected from legal implications and personal bankruptcy.
• Access to grants and financing: Incorporated businesses have a better chance at acquiring grants and financing from banks since they are seen as more credible.
• Lower tax rate: Corporate tax rates are generally lower than personal income tax rate.

Disadvantage:

• Incorporation cost and complexity: The cost of incorporating is more expensive than starting a sole proprietorship. Prices vary depending if you decide to incorporate provincially or federally. Federal incorporation is between $200-$300 just for the application. At times it may be useful to have an accountant or lawyer prepare the article of incorporation, which we set you back a couple hundred dollars.
• Ongoing costs: Annual filing fees need to be paid. Also, corporate tax preparation and filing are more complex and expensive. This should be done by an accountant.
• Increased paperwork: There is a lot more filing and paperwork that needs to be done and sent to CRA. For instance, if you will be claiming employment income. You will need to prepare a T4. Bookkeeping will need to be done on a periodic basis.

If after going through the advantages and disadvantages of each business structure you are still undecided, I’ll give you my advice I give most of my clients.

If your business earns more income than you need personally I would recommend incorporating.

Here’s an example to get a better understanding:

Assume your sole proprietorship earns $100K a year, but you only need $60K to live comfortably and save for retirement. In this situation the full $100K is taxed at the personal tax rate, which we’ve determined is higher than the corporate tax rate.

Now let’s assume your incorporated businesses earns $100K a year and you decide to pay yourself a salary of $60K. Only $60K will be taxed at the personal tax rate. The remainder will be taxed at the lower corporate tax rate. 

Hence, it’s generally better to incorporate if you earn more income than you need to live and save comfortably. 

Keep in mind that this was a simplified example and every situation is different. 

*Pypr Pointers are just that, and should not be taken as financial advice. Consult a professional accountant (we can connect you to one!) for information pertaining to your exact situation.These Pypr Pointers were provided by CPA & Pypr Partnr Daven F.

Your Business’ Structure: Incorporation

Since you’re reading this, you’ve probably already seen the Pypr Pointers tax-specific post about Sole Proprietorship vs Incorporation [https://hellopypr.com/resources-canada/].

As your business grows, you may find that you also have questions about the legal side… that’s why we’re here to help! This post will cover the legal advantages & disadvantages of incorporation as well as the framework that you can use to guide your decision about whether it is time to incorporate your business.

OK, let’s get into it! Below are the advantages of running your business through a corporation:

Advantages

The advantages of organizing the legal side of your business through a corporation:

Raise Money:
First and foremost the corporation is a legal vehicle that businesspeople use to raise money. That money could come in various forms such as investment in the share capital of the corporation or financing such as a line of credit.

Limit financial liability:
Corporations are separate legal entities that are independent from the shareholder(s). This means that if the corporation ever has debts it cannot repay or even goes under, the owner’s personal assets should be protected.

Limit legal liability:
Because the corporation is a stand-alone legal entity, this also means that it is separate from its management, i.e. the directors and officers. Practically speaking this means that, for example, if the company gets sued, the individual managers are directly brought into court.

Manage tax burden:
As covered already, a corporation should pay less tax than you would personally.

Continuous existence:
If you have to leave your business for any reason (retirement, health concerns, etc.), it can live on without you, which is nice. What this really means is that the business can be sold / financed / transferred. It also means that the corporation can develop assets, such as content, that it then licenses over many, many years.

Name Protection:
Incorporation is often seen as the first step in building a powerful, lucrative brand. For example, a federally incorporated business in Canada has dibs on its corporate name and the federal government will refuse to incorporate another business with the same name.

Disadvantages

So far incorporation looks pretty good, right? But, of course, nothing is perfect. There are drawbacks to incorporation, too. Check out the disadvantages below!

Paperwork:
The single biggest disadvantage of incorporation is that it creates extra responsibilities, and extra paperwork.

The paperwork you need to get right when managing a corporation include the need for documented shareholders and directors meetings as well as maintaining a minute book. In fact, once the corporation is incorporated, it is legally required to keep accurate and up-to-date records.. These records are typically stored in what is called a corporate minute book. (The minute book is the responsibility of the corporation’s director(s).) Furthermore, if you intend to seek out external investment in the corporation, a credible investor will expect to have the minute book reviewed by his (or her) law firm as part of his (or her) due diligence.

Costs:
The added cost of incorporation also needs to be considered.

In addition to professional fees, there are purely financial costs associated with incorporation.

In terms of tax, when the corporation claims business expenses, it means that those same expenditures can no longer be used to reduce your personal tax burden. On the banking side, incorporation results in a separate entity and this separate entity will need its own bank account, which is unlikely to be free.

Conflicts:
Finally, while on the subject of disadvantages, we need to consider the possibility of conflicting priorities between the shareholders, directors, and officers.

Timing

So, how to decide if it’s time to incorporate your business?

The accountant’s suggestion of looking at whether there is money left over at the end of the year is a good one. I want to offer another way of thinking about it… as you have already seen, incorporating and then managing the business is a serious responsibility that will take time and money. (This particular reality is not ‘sexy’ but it is the truth.)

I often suggest that clients ask themselves just how serious they are about the business. For example, are you at the point where you are prepared to invest both time and money in the business, or do you want to leave it as a side hustle? Put another way, is this business what you plan to focus your working hours on over the coming months and years?

Depending on your answers, it may be worth making a plan to incorporate.

These Pypr Pointers were provided by lawyer & Pypr Partnr Matthew L.

Your Business’ Team: Influencer and Marketing Contracts

Like they say, it takes teamwork to make the dream work!

As a content creator you are at the center of your business. But, especially if your business is starting to scale past the ‘side hustle’ stage, you likely are receiving help from people around you. That help may cover specialized services or even just repetitive tasks. Ie. personal assistant, graphic designer, social media manager etc. 

Building a team is exciting, so pat yourself on the back! Having a clear contract between you and each member of your business team is a universal piece of advice for avoiding misunderstandings, disagreements, and even conflict.

This PYPR Pointer briefly introduces two important contracts that you will need as your business grows: the influencer contract, and the management contract. For each we discuss some key points that are especially important.  

Influencer Contracts 

An influencer contract is all about the relationship between you and a brand. The owners of the brand are hiring your business to represent and promote the brand. Of course, you are promoting the brand’s offer in exchange for compensation.

The exchange of compensation from the brand for your services as the influencer is what makes this deal a legal contract. 

From a more technical perspective: the influencer contract is a contract for provision of services, in other words, it is a contract of a commercial nature, which regulates the relationship between two parties, in which one (called the company) intends to promote its brand through the prestige and recognition of the other (called the influencer) in social networks, in exchange for a payment of an economic nature or in kind.

This section briefly introduces some key exchanges of acceptance and consideration in influencer contracts. These include:

• the object of the contract
• client’s approval rights
• exclusivity provisions
• intellectual property
• key messages

It would be hard to imagine writing an influencer contract without the following…

Object of the contract:
Remember that the brand is now your client. The contract should outline and specify in as much detail as possible, exactly what you, as the content creator, will do and  how the content is to be delivered. I.e. the number of publications, how there is going to be a script by the influencer (minimum of hashtags or keywords, or include in the post a brand slogan, among others); or the type or types of channels to be used to promote the brand (Instagram, Facebook, Tik Tok YouTube.)

Client’s approval rights:
It may be that the client needs a preview for subsequent approval of the created content. For example, the client may have a preference about whether you simply push the content live or maybe you need to send it in advance through a particular system i.e. for review and approval.  

Exclusivity Provision:
This is a very important clause in the contract. The contract should state whether or not or there is exclusivity on either side. It should also be considered whether the influencer can include other brands in the content that he/she posts or not. The exclusivity of the influencer refers i.e. to the possibility or not of the influencer offering his services to other brands and/or the advertiser. Likewise, it needs to be negotiated whether there is a limit on the advertiser working with other influencers.

IP Rights:
Consider whether you need to maintain ownership of your content. The client can still license that content from you. A clearly drafted license that is acceptable to both sides is recommended.

Key messages:
While the client will want you to use your own voice and opinions about their product / service, it may also wish to provide the key messages you present.  Sometimes the brand will send you the product chosen by you (i.e, clothing), or sometimes it will have the courage to send you the product without knowing your tastes or preferences, in this case the contract will have to establish the limits of the message to be transmitted on social networks.

Branding guidelines:
Creating content can take a tremendous amount of time, energy, and (lets face it) money. It’s a good idea to have clarity with your client about their branding expectations. Therefore, it is important to follow a certain statics and the style of the brand, but on the other hand it is also important that you, as an influencer, do not lose your personal touch. So you must be clear on your style and your perspective in order to follow the line of your profile, and not be prejudiced. (i.e. you lose followers, other brands stop collaborating with you).  

Manager Contracts 

A management contract is all about the relationship between you and the person or firm who connects you with specific opportunities.  A good manager will also help you vet opportunities so that you find the right fit for you and your business. 

In time, your manager should hopefully become a trusted advisor. But, this is easier said than done because the manager and the influencer/creator often have different interests and incentives. A well drafted manager contract should help to bring these interests and incentives closer together. 

1: Appointment

Appointment of the manager is the foundation of a manager contract, of course.

All management contracts will have an appointment provision but not all appointment provisions are created equal. It makes sense to think about what exactly the Manager is going to be helping with: all of your business activities, or just your business in a specific industry vertical. 

You do not necessarily want to give away the “whole enchilada” of all your creative work to the first manager that you sign with. Depending on you and your needs, it may make more sense to limit that first manager’s appointment to only assisting with a specific platform, for example. This way you leave the door open to the possibility of expanding your team to include people with expertise in other niches or industries.  

2: KeyWoman

Management agreements in the entertainment industry often include so-called “keyman” clauses. I’ve changed that to KeyWoman for present purposes. 

If you are signing up to a management company, also known as a talent agency, it is important to be clear about exactly who you are going to be working with. If you agreed to join the agency because of a particular strong rapport with one agent, then it is a good idea to get in writing that the agency will be providing you with the services of that specific person. 

Another reason to include a keywoman clause is so that, if the individual leaves the agency, agreement can be terminated rather than having another agent pushed on you.

3: Managers Obligations

It is often hard to get Managers to commit to specific obligations, especially in writing. 

A Manager’s role is ephemeral and can be difficult to reduce to a written job description. But, that does not mean that you as the influencer/creator are necessarily well served by skipping over this provision. One technique we sometimes use is to focus on the quality of the relationship rather than specific tasks. 

4: Commission

Of course another way of focusing the manager’s attention on getting you more and better work is through the right commission structure. 

A rate of [____]% of gross income may be standard depending on your specific industry. In that case, you should not agree to pay more than this. 

Other important points include:

(i) items to be treated as non-commissionable:

-Influencers/creators should not be expected to pay commission on monies advanced to cover business costs. Depending on your specific format, these routine costs may include: recording costs, video costs, third party producer’s advances or royalties etc. 

(ii) sunset clauses:

There was a time when powerful managers routinely collected a commission at full rate on all the deals they introduced even after the management agreement was terminated.  Fortunately, it is now widely recognized that after the term of the agreement there should be a limit on commission payable. But, the question is now where exactly that limit should fall. 

This does often become one of the *harder* parts of negotiating a management agreement. In practice, one solution is to link the length of post term commission to the time spent managing.  

Key Takeaways 

The above are just some of the exchanges that need to be considered and then negotiated in your business’ contracts. As your business, you are going to become more familiar with the details that come up in these contracts and you are going to learn about what others in your industry have been able to negotiate. 

Who knows, in time you may come to find that negotiating contracts is kinda fun. In any case, your negotiating position will definitely become stronger over time. 

Experience suggests that there are two ‘golden rules’ to follow in this negotiation process…

Win-win. It may not be possible in every last little detail, but, in the big picture we want to make sure that both sides are winning.

Remember, business is not personal!

Have you noticed that people can be very aggressive about what they will do to make a buck? Before going into any business negotiation, it is important to have a clear understanding of your own limits and boundaries. In this way, you can use the contract to enforce your limits and boundaries, rather than the contract using you. 

Other types of contracts that you will want to develop as your business grows are:   subscription contracts (i.e. the Fan Club) and, of course, the  non-disclosure agreement.

If you have any questions or need legal services please email Contact@hellopypr.com

*These Pypr Pointers were provided by lawyer & Pypr Partnr Matthew L.