Alexandra Macqueen is a Certified Financial Planner who teaches, advises, and writes about personal finance in Toronto as a freelance writer and advice-only financial advisor. She has a love for retirement income planning, but is interested in every aspect of personal finance at every life stage and for every person. She loves collaborating and finding new ways to reach people.
In this episode, Alexandra and Mohammed talk about how Canadian freelancers can define the purpose of their business and use those insights to establish a business structure that's right for them.
Short on time? Skip to the parts you're most interested in.
[01:25] Getting started with freelancing
[14:49] Reasons for not incorporating a business
[18:08] When freelancers should register their business
[19:57] When freelancers should register for GST/HST
[21:28] Pros and cons of incorporating your business
[20:36] Testing new business offerings
[23:40] Flexibility of a sole-proprietorship structure
[24:50] When freelancers shouldn't incorporate their business
[27:51] Transitioning from a corporation to a sole proprietor
[33:16] Defining what you want in life
If you enjoyed the conversation, check out more episodes of our podcast. You can subscribe to Freelance Canada on Apple Podcasts or listen to it wherever you get your podcast. What follows is a lightly edited transcript of the episode.
Subscribe to Freelance Canada newsletter.
Every Tuesday, you'll get an email with detailed notes, actionable tips, and book recommendations about the topic discussed in the episode.
Plus, to help you get started, we'll provide you with three downloadable cheat sheets when you sign up.
Mohammed: Okay, let's get started. How are you feeling so far?
Alexandra: I feel great [...] This is actually podcast one of two for me today. [...] The second one I'm doing [is] a podcast with a provider of financial services course materials. I worked for him as a grader and he's interviewing me about my financial services career.
Mohammed: Well, that's a great way of getting started and asking what is it that you do as a freelancer?
Alexandra: [That’s] a good question. I think that part of the beauty of being a freelancer is that you are not constrained to doing just one thing. In some ways, that phrase “side hustle” has become like a phrase you hear everywhere. And, I often think my work is just a series of different side hustles that, together, add up to one big hustle.
Mohammed: I want to know more. What are, what are all of the [different side hustles]?
Alexandra: Once upon a time, I was an investment advisor, but even before that, way back in 1996, I was a federal civil servant. I was working on what [was] called these term contracts. I wasn't a full-time permanent employee. And, I had a boss who I just loved [who] left to start a consulting firm.
And after, I don't know, six months or a year, he said, “You know, I have more work than I can handle. Would you consider leaving your job and joining me?” And because I didn't have [a] full-time commitment from [my] employer, [I thought], “Oh, sure. I would have a chance to work with this guy that I love and do things I'm interested in.”
So, I did that. [We] was actually working for an Aboriginal organization on a whole variety of projects, including land claims, treaty negotiation, a Supreme court case [etc]. My main job was working on what was called a Self Government Agreement to replace the Indian Act for seven communities all along the Trent-Severn Waterway in Ontario. I did that for about 10 years and I was a freelancer, so I wasn't incorporated. That was just me. I worked with this guy, we didn't have any formal business partnership, [so] I wasn't anybody's employee.
I had a toddler and an infant, so every day for a year, I got up at like four or five in the morning, studied for a couple [of] hours and then was with my kids during the day.
Alexandra: And then I had these two kids and I didn't want to travel as much. So, I thought, “I want to do something that can still help people.” [...] I want to be a force for good. And I have always been interested in personal finance so I thought, “I'll become a financial advisor,” not really even knowing what that means. I thought, “Okay, to become a financial advisor, [I] better get a good, big designation. Something reputable that people will respect.”
So, I [decided to become] a certified financial planner. I had a toddler and an infant, so every day for a year, I got up at like four or five in the morning, studied for a couple [of] hours and then was with my kids during the day. And I did these exams over the course of the year. Then, I was eligible to go and work as a financial planner. I had this designation after a couple of years of experience. I became a financial advisor and then 2008 hit.
I was working as an employee [and] the place where I was working laid off everybody. I mean, lots of people lost their jobs in 2008 and the financial services industry. It's really interesting how COVID is similar, except that it's so much more widespread. If you worked in financial services in 2008/2009, you [saw] industry-wide shutdown, contraction, [and loss of employment.
But if you didn't work in financial services, you probably didn't really even know anything about that. So, because it was the global financial crisis at the time, E.I. (Employment Insurance) was extended. I had breathing room because I qualified for E.I. because I had been an employee [and] I got a little bit of severance from the job that I had. [That’s when] I thought, “Okay, what is it that I want to do?”
I had been a financial planner working and doing financial plans for clients and I loved doing that; I still actually do that as one of my many side hustles. But, what I really liked, was putting ideas into words and communicating. How could I distill these complex topics? People think finance is very complex. How could I distill that down to empower people? I thought, “I'll become a financial writer.”
So, I launched a freelance financial writing career. It's funny because Facebook memories, just this week, [reminded] me that it was 12 years ago [that] I said, “That's it. I'm becoming a financial writer!” By sheer luck, I landed a job as a financial writer. Like there's really not any jobs called “financial writer.” Well, I guess there are a few, but not many. It's not really a career you set out to do.
But I got hired by this very small FinTech startup (this [was] before people even used the word “FinTech”. With the CEO of that startup, I wrote a book and, because he's very famous, the book got me more traction than I ever [would have gotten from writing a book on my own]. Then [my career] was really launched as a financial writer.
Now, I do financial writing for lots of clients like banks, insurance companies, that kind of stuff. I also do personal financial planning for people who are transitioning into retirement. Like that's [my] niche. I mean, everybody focuses on that niche in many ways, but I don't [cover topics like], "Should I buy a house?” or “I'm just starting out in life.” I [help answer questions] like, “I've got to make a decision about my pension. Can you help me?”
I've done tax preparation for 20 years. I don't really do that anymore, but I do help people with taxes. I'm [also] a grader: I grade assignments for people who are trying to do the courses to become certified financial planners.
[In addition to that], I do a ton of volunteer work and I somehow bring it all together and make what I think of as a “quilt” of things I'm involved in. Some of which pays, some of which don't, but it all comes together and fits.
Mohammed: I like your quilt analogy and I'm surprised you used the word quilt rather than a portfolio of things. In terms of your book, you have a few books out. Can you tell us how those came about?
Alexandra: [For] the first book, I was working for this small FinTech startup that was owned by three university professors. One of whom was Dr. Moshe Milevsky, who is really a world-renowned professor of finance at York University. He has a not for profit organization called the Individual Finance and Insurance Decisions Centre. That organization had a small, for-profit entity and that's the organization that I worked for.
So, I was working for him [when he asked], “Have you thought about helping me write a book?” [That book] was published in 2010 [and] is called Pensionize Your Nest Egg. It was about [how you can create pension-like income or build your own pension plan] if you're somebody who doesn't have traditional employment or isn't a civil servant with a guaranteed pension to retire to. So, that was book number one.
More recently, with another financial planner, we wrote an updated edition of a book for Thomson Reuters called The Boomers Retire. I know, it's funny because, “OK, Boomer.” I actually have an “OK, Boomer” sweatshirt [...] It's like my favourite article of clothing. I'm not actually a Boomer, I'm a Gen Xer.
[Anyways] this is a book for financial advisors with [a lot of] technical information about retirement. [Because] it's so complex. There are so many decisions and they're all high stakes and they change all the time.
In a way, we think of retirement as the end of work. Like, you work and then you stop working. Being a freelancer, for me, has been a little like having a bit of retirement every year.
Mohammed: And, after the book, that's what led you to start writing more and become hone in on this financial writer path?
Alexandra: [Milevsky’s] company was ultimately sold to another company and I wasn't part of the sale. So, I was back to being a freelancer again. [...] I really wanted to do something that [would allow me to] be with my kids and earn income. [I didn’t want to work a nine-to-five].
I mean, everybody should do what works best for them, but I really wanted to be around a lot when my kids were small. Now that they're big, I'm like, "Go away." In a way, we think of retirement as the end of work. Like, you work and then you stop working. Being a freelancer, for me, has been a little like having a bit of retirement every year.
Mohammed: Hmm. Can you dive into that a little bit more?
Alexandra: [The old school version of] retirement is really changing. People [think of] it as a very binary thing: I'm going to work and I'm working a hundred percent and then I'm retired and I'm working zero percent.
Alexandra: And [...] if you think about the conventional marketing images of retirement, it's two Muskoka chairs on a dock or it's a sailboat or maybe it's golf, but it's definitely leisure. It's definitely, “nothing.” It's not active. I'm not out there volunteering for Habitat for Humanity. People have this dream of [not having to work anymore].
One of the challenges around retirement is, if that's your model, what are you going to fill your time? People envision retirement as, “Ah, leisure. I will do whatever I want.” [For example], one of the things I really enjoy is food. This may sound crazy, but I spend between one to two hours a day cooking. That's [just something I've always done].
Alexandra: If I want to spend two hours a day cooking, what it means is that I'm going to do a task and then I'm going to go to the kitchen and just check something. I get up in the morning, I start something, maybe I'm baking bread. I'm going to check my starter and then in an hour, I'm going to punch it down and then in another hour, I'm going to put it in the oven.
Being a freelancer with all these different tasks of working from home — I mean, everybody's working from home right now because of COVID — but the idea [is that] I want to bring in all my different interests and do them all, all the time.
The risk of losing the chance at it was not enough to make me say, “I'm going to turn down this unknown adventure going into this world of [a] freelance consultant.”
Mohammed: Right. And at what point did you realize that you have this flexibility? Was that always part of the picture when you were thinking about becoming a freelancer? And again, you started freelancing back in 96, if I recall correctly. So...
Alexandra: Yeah. It's a long time ago. I was in my twenties in 1996. I'd been working for a few years but, [as] I said, I didn't have full-time employment. I thought, “If I hang on, maybe I'll get a full-time job offer.” But I called my older brother who’s a professor [and had] full-time, stable employment, [and asked], “What should I do?” I felt like if I stayed, I'd probably get a pension and job security.
[But he asked], “How important are those to you really?” And I was like, “You know, that's not really that important.” The risk of losing the chance at it was not enough to make me say, “I'm going to turn down this unknown adventure going into this world of [a] freelance consultant.”
Mohammed: And when you started freelancing, you didn't register as a corporation. You were just a sole proprietor,
Alexandra: That's right. And I never have.
Mohammed: So, ‘96... what's the math here? I feel like I should just know this off of my head... 24.
Alexandra: Yeah. I was going to say 24.
Mohammed: Okay. So you're about to hit silver Jubilee next year.
Alexandra: I'll give myself a spoon.
Mohammed: You've been a sole proprietor now for 24 years.
Alexandra: I have had a couple of years of employment [during that time], but for the most part, yeah.
Mohammed: What was your reason for not registering as a corporation?
Alexandra: There [are] lots of reasons why people should, and of course, this is something that I do actually advise people professionally on because, you know, I'm in that world of personal finance.
Sometimes, for freelancers, it's a requirement. A client might require [it]. It's really common, for example, in I.T. consulting. Clients, [or] other business owners, want the people that they deal with to be incorporated. It's largely a liability issue. They want to be protected from different lawsuits they might otherwise face.
If you make a lot of money and you're able to retain it in the corporation, it's taxed at a lower rate while it's in the corporation. So, you can defer tax on that income if you're not spending it. If you're pretty much spending everything you earn, other than money that you might put into a TFSA or an RSP (or both), then the benefits to incorporation [aren’t] there.
It's only when you have surplus funds that you can keep up the corporation and have them be taxed at a lower rate that the benefit of the corporation is there. Additionally, when you are incorporated, you can make decisions about the type of compensation you take from the corporation.
So, you could choose to pay yourself a salary. You could choose to pay yourself dividends. Or you could choose a mix of both and there [are] tax consequences for each of those choices.
When you're a sole proprietor, you and the business are the same. When you're a corporation, you have two taxpayers: you have you as a personal taxpayer, and then you have the corporation that's also filing its own return and paying tax.
Mohammed: When you mentioned a lot of money, what is a lot of money?
Alexandra: Good point. Normally, you would look at this from the point of view of, “It's gotta be a better option.” Because incorporating is more complex. That you have to file yearly corporate tax returns. It's going to have a bigger cost than just being a sole proprietor. We talked about this earlier.
You're a sole proprietor. You file one additional schedule on your tax return — the T2125 — and you're done. When you're a sole proprietor, you and the business are the same. When you're a corporation, you have two taxpayers: you have you as a personal taxpayer, and then you have the corporation that's also filing its own return and paying tax.
And, [as] I said, that costs money; somewhere between $2,500 and $4,000 a year. So, [as a freelancer] if I'm going to do this, I better have at least $4,000 worth of savings. But if I'm a sole proprietor, I can defer income by establishing an RRSP. I can put 18% of my earned income up to a specified maximum every year in an RSP.
Let's say I'm earning $100,000, I can put $18,000 into an RSP and then pay tax on the remaining $72,000. If that's my situation, there's not really much benefit to incorporate.
[But] I might still decide to do it if I don't want to pay myself anything from the corporation. [If] I don't need the money for some reason or if I want to pay myself dividends, I don't want an RSP. Because if you pay yourself dividends, those aren't considered to be so-called earned income for RSP purposes, so you don't build up any RSP room.
Mohammed: And when you registered, did you register as a sole proprietor or you didn't even register at that part of it and [just decided to operate].
Alexandra: Unless you're not operating under your own name, you don't really need to register anything. Some people think, “Oh, I'm going to register as a sole proprietor.”
Actually, all you have to do when tax time comes is report self-employment income somewhere. For [a] sole proprietor, it's on that T2125 form, which is a one-page form. If you want to operate a business that's not your own name, [for example] “Moonlight Consulting Services,” then you have to register that business name with the province, but that actually has nothing to do with your taxes.
So I didn't collect any GST from my clients, but I could claim all of the input tax credits that I incurred as a businesswoman.
Mohammed: And did you get a GST/HST number at the same?
Alexandra: I did because the first work that I was doing as a freelancer was for First Nations organizations and they are in the relatively unique position of being zero-rated clients. What that means is HST or GST at the time is charged, but at the rate of 0%. So I didn't collect any GST from my clients, but I could claim all of the input tax credits that I incurred as a businesswoman.
There [are] lots of times people will have U.S. clients [who] are also zero-rated. That means you charge them GST at the rate of 0%. Which just means you display it on your invoice. But, when you have GST and you buy printer cartridges at Staples, you can claim the amount of GST that you pay (the input tax credit) as a deduction.
Sometimes when people start freelancing, they probably have a job already. Or they might have dived into freelancing, but they haven't yet registered or met that threshold of $30,000 per year. When should somebody think about getting a GST/HST number? When they start freelancing? [...] I'd love to get your thoughts.
Alexandra: It's an interesting question because sometimes people [think that] having an HST or GST, depending on your province account, makes you seem successful. Because it communicates that you've likely met the revenue threshold at which point registration becomes not optional but required.
So people think, “Oh, it can communicate the appearance of success.” And I think that that's actually totally valid. I think that that's probably accurate. It does add administrative complexity. You now need to collect GST and you need to then remit it to the government. And you can choose one of two ways; the quick method or the non-quick method.
One is less calculation than the other. If you fall into the scenario that I described, which is that you are not required to charge, you can claim that GST credits. That's another reason to register early, before you would be required to.
Mohammed: Right. But at the same time, you'll have to stay on top of [everything].
Alexandra: You do. There's no question that [when it comes to] being a freelancer, there [are] lots of trade-offs. One of them is that you have to do more administration.
I spend what I really think of as an astonishing amount of time on things that are not writing. I do all the invoicing, following up on invoices, and organizing my books. That's all stuff that employees don't have to leave any mental overhead for. Tax time for an employee is like once a year, [they] gather [their] stuff, it's a few slips, [they] take it to a tax preparer and [they’re] done.
[As a] freelancer, this is your entire business model. What is it that I can claim? What is a business expense? People want there to be bright lines in the CRA (Canada Revenue Agency) guidance about what you can claim. And if you read all the documentation, it's like, “Well, it's expenses incurred in the course of doing business.”
But what is that? If I went to a movie and I got an idea for a story, can I claim that $9? The answer is, “No.” But you can see why people would be tempted. When does the business start and when does it end? That's the nature of freelance life — it's blurred together.
Mohammed: Yeah. I think the biggest one is like, “I bought these new clothes for a talk I'm doing or I'm going for a client meeting. I can write this off, right?” No, no, don't.
Alexandra: That's such a good one. People ask that one so often.
Alexandra: Actually there's a really great case where a woman is like, “I'm a judge and I wear judge robes, but underneath I wear black clothing so it matches and I want to write off the black clothing because I wouldn't otherwise wear this black clothes.”
It's like, “No.”
Mohammed: Wait. So, it was a judge that went to court?
Alexandra: I think so. There's a tax court case if I'm remembering it all correctly.
That simple structure of sole proprietorship has continued to serve me as I've moved through different roles.
Mohammed: Got it.
Being a CFP, a financial writer, an author, a grader [over the last 24 years]. [There are] so many different pieces of the quilt coming together. [Having] started off as a sole proprietor and still to this day being a sole proprietor, how much has changed if anything at all?
Alexandra: Well, I think that really nothing has changed in the sense of that, that simple structure of sole proprietorship has continued to serve me as I've moved through different roles.
Like the thing that I'm doing now is a hundred percent different from what I used to do. And yet, [because of] that structure of sole proprietorship, I [used to] put down on the T2125 [the] industry code called management consultant and now I can't [even] remember what I use because it's been so long since I changed it. But it's probably some version of marketing financial services.
So, from the point of view of [the] Canada Revenue Agency, it's all just self-employment income that's being reported in the T2125. That's been consistent, every year.
Mohammed: I am definitely biased because I agree with [a lot of what you’re saying] and it is something I tell others. I do believe there are going to be people who feel conflicted because, for them, being a business means [being] a corporation. I've come across way too many people that have an idea for a business and they'll go and immediately incorporate rather than even testing the idea to see if it's feasible as a freelancer or as a sole proprietor.
But [there’s this pervasive] thought of, like, “Register your business online for like $600 now.” Like, all these different companies that have popped up...
Alexandra: I actually have so many thoughts about this exact issue. Which is, “Am I a business? Or am I just a person who's doing all of these services that I'm charging money for?” Because for me, [a] business has this whole constellation of other particles around it. So, business to me implies [a] growth mindset; it's obvious that you'd want to grow year over year. And maybe you'd get an employee.
[...] COVID's changing everything for everyone. I feel like we're at the point, five months in, where people are thinking [less about surface-level changes and more] about the deeper, longer-term changes. So, I think a lot of people [who are working from home] are going to be like, “I actually don't want to go back to an office. I like this life. I like not commuting. What does that mean for my future? Am I staying with my employer? Am I going to do something different?”
[...]My next-door neighbour is [saying], “I am not stuck in Toronto anymore. I'm going to sell this house and move someplace small.” And she's just one of probably 20 more people on my street having the same conversation. But, for me, being a single person, a sole proprietor, doing my thing, it's actually very different from owning a business that's separate from me.
I really liked the idea of “I'm it. And it is me.” I know this is like a psychological thing, but I don't actually want there to be that separation from me, my personality, my approach, my viewpoint. That's what you get when you work with me. It's not this separate entity with a separate name, separate tax and financial identity. You get me.
That's the thing: I feel like the reality of this is all very simple. Establishing yourself as a sole proprietorship is extremely simple. Establishing a corporation is more complex.
Mohammed: If I am a sole proprietor that has been operating a corporation, but have started recognizing that it's really not benefiting me because, if anything, I'm paying a lot of money just to keep the lights on for the corporation.
Because there [are] the banking fees, there [are] the cheque books, there [are] the extra fees from the accountants because they're going to charge me the corporation fee versus a sole proprietor and all these other [things like] the minute books and annual filings, etc.
So, if I'm recognizing that this is not feasible or sustainable for me, how can I make a transition from corporation to a sole proprietor?
Alexandra: Well, you would just need to close the corp. Then, if you had clients that you wanted to continue working with, you’d need to explain to them [that] instead of billing [them] as “ABC Corporation,” [you’re] going to be billing [them] as [your] name. I don't think that clients particularly care.
That's the thing: I feel like the reality of this is all very simple. Establishing yourself as a sole proprietorship is extremely simple. Establishing a corporation is more complex, but you would close it and just go back to the sole proprietorship. But we're not actually talking about the technical details. It's all of these other considerations: “If I do this, then what? How will people think of me? Will they still take me as seriously if I'm not incorporated?”
And what I just described — about if you want to work with me, you get me — I think if I have a unique business idea, maybe I want to incorporate that. Because I want it to be its own thing. Maybe the simplest way to say it is, and this sounds hokey, but it's actually so true for me is that I want to establish a direct connection with the people in the companies I work for and with.
I don't want to have it be intermediated through a corporation. Even though that might not change anything tactically about how I operate, I really just want to be self-expressed with my clients and be who I am. And I want them to know that what they've got is me and not some entity that's owned by me.
Mohammed: I suppose I could come back and say, “[...] It is just a mindset thing. Unless you feel that the entity that you've created as a result of that just creates an extra being?
Alexandra: That's really it. It's a whole separate thing, which is the purpose of incorporating. But the thing is, it's taken me a long time to get to this point. I was actually planning to incorporate this year.
Last year, I did a whole whack of things. I have a little bit of passive income, but not much. Most of the work that I do [and the] income that I earn is based on [the fact that] I actually did something to do it, right? Obviously. I know it's everyone's dream to have passive income where you can make money while you sleep. I don't really have that. I make money while I'm awake and only when I'm awake.
So, it was a challenging year because I was way busier than I wanted to be. And I don't think that I would have recognized that, but for COVID. COVID has caused me, like many other people, [to] pause. All kinds of projects that I was committed to, was working on and was engaged in stopped in March.
But I didn't immediately go right back up to the level of busy-ness and income that I'd been earning. Five months in I'm like, “Maybe I like it this way. Maybe this isn't the low from which I'm immediately going to try and recover. Maybe this is how I want things to be.”
I always worry that that sounds very privileged. Like, you should just take the work as it comes and you shouldn't say no. But, this is my life; it’s the only one I'm going to get. I might as well design it how I want it.
Mohammed: Design your life. Become a freelancer.
Alexandra: That's my, my quilt, right? My life that I want: two hours of cooking a day, a lot of time with my kids and then work that fits into those other things.
Like there's all kinds of images about work, things we tell ourselves about how you should work, and grind [and] hustle every day. But what if it wasn't that way?
Mohammed: I like that. I like that a lot.
Alexandra: There's an image of freelancing as like “feast or famine”. Like there's all kinds of images about work, things we tell ourselves about how you should work, and grind [and] hustle every day. But what if it wasn't that way? I'm all for the hustle. If people want to hustle, more power to them. But if you don't want to, then what?
Mohammed: I'm digesting all of this, so you can't see my face. I'm having one of those self-reflective moments, which is great. And hopefully when people are listening to this that [they] are also pausing and taking a moment to self reflect before they resume. I really like this approach to designing your quilt. And it doesn't have to look like what someone else's quilt is and to each their own.
For those who are already on a freelance journey or perhaps are now thinking of making the leap, what advice do you have for them as they think about structuring their business?
Alexandra: Well, it's interesting. I have spent so much time over the past 24 years getting specific coaching on what I want my life to look like. Not business coaching like, “Here's how to set up your business accounts.” It's more like, “What life is it that you are building?” So, over the course of the last 24 years, I have rigorously sought out coaching advice.
The last time I left full-time employment, I worked with a coach. Because I wasn't sure, [I thought], “Should I leave? Should I stay?” I wasn't happy where I was, but [wondered if] maybe I should stay in that role. It [was] a big role. So, I came up with criteria [around] how to evaluate opportunities that were in front of me and I still refer to those criteria every day.
I want to work with people that I genuinely like on projects that I am genuinely interested in that broaden and deepen my existing knowledge. I want to learn things that require my specific expertise. I don't want to be a cog in somebody else's [machine].
So, if your question is, “Where do you start?” [My advice is to ask yourself] what [do] you do? What is it that you want? What is it that you're building?
Mohammed: I think this is a great place to wrap up and as we do, I'd love to know where people can find out more about you and your work online.
Alexandra: The best place to find me is on Twitter. My Twitter handle is @moneygal because here I am, I'm all things money. I have an Instagram and it's got a funny title. It's @aliasmrsh because I'm married, I kept my maiden name, but my husband's last name begins with an H [and] sometimes people call me by his last name. But honestly, my Instagram is literally cats, food, and flowers. I don't have a professional Instagram.
Mohammed: I mean that sounds pretty good, but Alexandra thank you so much for this opportunity to learn from you. I love that we're chatting on a Friday cause now I can [...] do some self-reflection. That's the state I feel I've been put in now and I really appreciate it.
So, thank you so much!
Alexandra: Thank you.