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How I run my business selling software to Americans
Posted on: 2013-04-30 14:09:51

I first realized I had overpaid when I received my articles of incorporation from the law firm. Was it because they were in a leather bound binder? Was it because it had been shipped overnight from Toronto to Waterloo, a distance of 83 km, such a distance that I could have driven there and picked it up and then returned and paid less than the cost of shipping it? Instead I had to wait two business days for the Fedex truck to drive back to Cambridge since I wasn't home, and then I had to call in to arrange to pick it up at a "conveniently located" Fedex office a week later.

No, I was miffed because I had paid $1500 to incorporate, when I could have done over the web for far less. Still, it is a very nice binder.

Since that time I have slowly been finding ways to optimize my business, which consists of selling software to Americans. I sell it all kinds of ways.

A typical month:

WebSequenceDiagrams subscriptions $1600
WebSequencediagrams Server Sales $1600
Rhymebrain.com Adsense Revenue $1700
Zwibbler.com licensing and consulting $2000

*My annual reports are on Google Plus, where nobody reads them.

According to the Canada Revenue Agency, I'm a profitable small business. The only thing preventing me from spending it all on iPads, Google Glasses and Surface Tablets is the fact that I have to feed my lovely family.

I keep costs down by feeding them chocolate flavoured soylent in a bucket

Here's some tips on running a business in Canada selling software to Americans.


Incorporation is a good choice. While it gives a valuable sense of security (albeit false) against lawsuits, the most useful benefit is income deferral. I started this company while I was working full time. If it were a sole proprietorship, I would have had to pay the top tax rate of 40% on everything I earned. This would have been a huge disincentive to growing my business.

Evil Tip for starting a company while working somewhere else

Whenever someone asks if it's legal, point them to the corporate policy and claim that there's a simple form that you fill out, and loudly complain that it takes the legal department eight months to answer any emails. With luck, the person that asked will launch into his own stories about the slow legal department, thus deflecting the conversation to a more useful topic.

With all of the profits inside a corporation, I had to pay only the 16% corporate tax on them. But I can keep the profits there until I feel like withdrawing them. It's like having an extra RRSP.

However, incorporation does have some added responsibilities. First, I have to pay Intuit TurboTax $200 every year to file my taxes. And that software only does about 10% of the work -- I have to maintain a balance sheet and income statement for the year so I can get the numbers to enter into TurboTax. Still, I figure we are about even, because Intuit also bought the server edition of WebsequenceDiagrams.

Evil Tip for doing your own taxes

It is easy to make a lot of mistakes the first time. But hiring an accountant costs $2000, while penalties from the government for making a mistake are maybe about $50 tops. I'll re-evaluate this when I'm making sufficiently more profit.

After you incorporate, you can't do very much until you get:

A business bank account

Canada has a cartel of five major banks. Stay away from them. I was explaining banking to my 3 year old daughter (her twitter account):

Me: Banks are a place where you keep your money.

Lillian: WHY?

Me: Because they give you interest... (thinking) but then they take it away and charge you more money.

Lillian: WHY?

Me: I guess you put your money in a bank to keep it safe, and every month they take some away.

Lillian: WHY?

Me: I don't know. If you keep your money in the bank they will slowly take it away from you.


Me: Good. Now it's time to watch Dora. Daddy's got to go buy some bitcoin.

Instead, I use a local credit union, which has a pay-as-you go account. For $5 a month I can keep all of my profits there and write cheques. They wanted to sell me a business cheque book. What is it with all these leather-bound things? Does my business have to have everything wrapped in cow skin to appear successful? I imagine it might be useful in a narrow range of situations:

Me in line at the grocery store: Will you take a cheque for these RufflesTM brand potato chips?

Attractive cashier: Um, noooo. What do you think this is, like 1985? Don't you have a Paypass chip?

Me: What about... from THIS chequebook? (whips out the corinthian leather-bound Execu-Check 5000 with dual-signature, day-planner, and matching gold pens.)

Attractive cashier: Oooh, no problem, Mr. Hanov. What are you doing later?

My wife: He'll be sleeping in the basement. Let's go.

I managed to get them to give me personal cheques with my business name written on them by asking very nicely. Credit unions are nice that way.

Unfortunately you have to deal with big banks sometimes. I needed to get:

A credit card

After a lot of research, I selected the Bank of Montreal credit card for businesses, because there is no fee and every December I get some cash back for using it. I filled out the application with my personal information, and since I was working at the time, there was no problem getting it.

Evil tip for paying for things

Currency exchange is expensive. As a rule, I pay for US things with US dollars, and Canadian things with Canadian dollars. This was only a problem with Microsoft Office 365, which insisted on charging my Paypal account in CAD. I had to tell Microsoft that I live in Beverly Hills to use my USD Paypal account. Because that's the only zip code I know.
I've only talked about the Canadian side so far. But many Canadian software companies get all their revenue in US dollars. There is an important trick for dealing with this, which I will get to shortly. But first:


Paypal is utterly horrible to use and develop for. For example, to cancel a subscription for a user from last August, I have to page through them all, 25 at a time, waiting 5-10 seconds for each page load, until I get to August. If I didn't know when the subscription started, then I would be there for much longer reading all of the names. For developers, Paypal offers a special sandbox area which hasn't worked in months, and special paypal IPN notifications which are broken for several months out of the year.

But once it's finally working, Paypal works everywhere. It lets me enter in tax rates for all of the Canadian provinces and territories (Why aren't they there already?). It lets me accept orders from Israel, France, the UK, Germany, Australia, New Zealand, Finland, Norway. When companies that I sell to refuse to use Paypal, it lets me pay $35 to enter the credit card details manually. The fee is outrageous, but it's a steal compared to anywhere else I can use. (Update: Use stripe.com.

I use Paypal for most of my sales, but I have a small nagging fear that one day, the US Government, (which to us Canadians appears quite insane, so they would do this kind of thing) will take all of my money one day to fight terror by arming day cares. But when I transfer money out of Paypal into Canada, they use over-the-counter exchange rates. If you are using Paypal for currency-conversion you must stop immediately, because there is a better way, which I will explain to you shortly. But first, to get the money out of Paypal without currency conversion, you need:

A US dollar bank account

My credit union couldn't offer all the services I needed to run my global company. I searched around and I found a reasonable deal with the Royal Bank of Canada USD Checking account. It is regularly $9/month, but with a minimum balance of $2500 the price drops to $2.

I need the USD bank account so I can accept incoming bank transfers with no currency losses. Outside of North America, it is common to pay for large items by exchanging bank account information, so the buyer can transfer the cash directly into the seller's accounts. North American banks discourage this behaviour by levying huge fees. When I invoice a customer, I include the bank details and in a few weeks I receive the full amount, minus the $15 fee for RBC, and $25 for some mysterious "intermediary bank". Still, a flat $40 charge looks pretty good on amounts greater than $1000 when compared to Paypal's fees for the same.

Evil tip for well-connected, wealthy European financiers

An intermediary bank is a good business to get into. Also, drugs.

So I have a Canadian Dollar account in a credit union, US dollars in Paypal, and US dollars in RBC. How do I get my money into good old Canadian loonies and toonies? That's where my favourite part comes in.


If you are a Canadian company whose revenue comes in USD, you should immediately get an account at a currency broker. Once set up, it is a simple matter to transfer money between a US and Canadian bank account, at crazy-low conversion fees.

For example, I just went to Paypal and XE and priced out transferring $5000 USD into Canada. Today, the difference is not huge, but the spread has been much higher in the past.

Paypal$4,929.33 CAD
XE.com$4,980.00 CAD

I do not want 1 to 3% of my revenue disappearing off the top, so I use XE. When I signed up, I registered my US account and the Canadian one with them by copying the numbers off some cheques, and now I can initiate a transfer in seconds.

How do you do it?

Do you have a different way for optimizing your cash flow? Did I miss anything? Please share your tips in the comments.

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2013-04-30 23:46:34
What the hell is chocolate flavoured soylent and why have you been sneaking it into my coffee?


2013-05-01 19:09:23
Hi Steve

Had the same experience with paypal sandbox - eventually gave up, and tested by doing 5 cent charges on my credit card (that way, they will only ding you 5 cent transaction fee instead of 30)

In my experience, PayPal consistenlty takes 2.5% off the spot rate on currency conversion, as do most banks. XE takes about 1.3 percent, which is consistent with the figures you posted.

Paypal no doubt makes more money off the 2.5% currency conversion than they do off sales. Too bad they are getting nothing from you and me. If they charged 1%, they would get the 1%.

Don't tell RBC what you are using your account for. I made the mistake of telling them what I was going to use the US dollar bank account for, and I was declined. I ended up getting a US account with Harris bank, in Chicago (now BMO harris). Lately, I have been "converting" it by writing US cheques to my financial advisor, who then invests directly in US dollars, avoiding the expensive conversion.


2014-02-23 21:51:36
I am planning to start up a business for SaaS in BC - Canada and sell the SaaS service globally. I was wondering if you know how the taxation works in such case?

How do you handle the tax part on you sell your SaaS from Ontario to customers outside Canada or in Canada?

I would highly appreciate any answer on this topic.

Thank you!


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