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When providing mutual business services:

Expert: Hank Bulmash

John asked:

I have started to do web development work as a sole proprietor. I've recently found someone on the Internet, living outside of Canada, with common interests as myself who provides graphic design services.

We have talked about providing mutual services to each other and splitting any profit made together 50/50. How does this work? Is this legal?

If I were to receive payment for a project he helped on and sent him half of what I received, would I count my half toward my annual income or would I have to count the whole payment since I was the one who received it?

Also, if we were to create a web site with continual passive income (such as advertising), would that work the same as the previous example?

Hank Bulmash answered:

There are several legal ways to deal with this. The easiest way is to develop a written agreement that lays out what each of you will do and how you will split income.

It makes sense for the person who gets the business to record all of the revenue personally and also to record the amount paid to the second person as a sub-contract cost.

With the web site you wouldn't actually use an agreement between two suppliers. The asset itself (the web site) would be generating income. So you'd want an agreement saying that each of you own 50 per cent of the website, and the split will be 50/50 (or whatever other percentage seems fair) of the passive income.

About the author

Hank Bulmash
Bulmash Accounting Professional Corporation/CPA
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