Filing Taxes As A Self Employed Canadian


Of course, it’s easy to look at a gross amount of income on a cheque and think it all belongs to you, but if you go about it that way, come tax season, you’ll be in for quite a shock. The CRA actually has a pretty good tip sheet for how much income tax you have to pay in a year based on your annual income.

filing taxes as a self employed canadian

And since I mentioned side hustles, if you work a full-time job for a company, but in your spare time you have a side hustle, it’s on you to save a percentage of your side hustle income for tax time as well. I remember the first year I earned money from my blog, I had no idea I had to do this! When I filed my taxes, I was hit with a bill of a few hundred dollars and I felt like such an idiot. So no matter what your side hustle is , remember that you need to save some money for income taxes and CPP contributions. Quebec and Alberta collect their own corporate income taxes, and therefore may develop their own definitions of taxable income. In practice, these provinces rarely deviate from the federal tax base in order to maintain simplicity for taxpayers. Corporate income taxes are collected by the CRA for all provinces and territories except Quebec and Alberta.

Turbotax Online

Use the correct documentation to support CRA tax claims and apply mileage deductions. Here’s the evidence you need for a vehicle‚Äôs business use. Do you have to submit taxes for your sole proprietorship if you make under 30k, and more specifically in BC? You may need to verify – and please DO let me know if I”m wrong on any of this lol. And yea a video would be great, unbelievable how fragmented all this is.I know you help a lot of people on here so I took the time to spell it out. Based on you’re comments, you’re very responsive and helpful so thought I would return the courtesy. People probably don’t care much for the complexity of it all, but it’s nice to know for those who are strategically mapping out their finances/investments.Use form T2042 for farming income and T2121 for fishing income. For example, suppose you are a painter and you agree to paint the office of a massage therapist in exchange for massage treatments. If you normally would have charged $1,000 for the job and the massage therapist provides services valued at $1,000 in exchange, then you must include the $1,000 in your business income. The value of the painting services you provide is the same as it would be if you received cash for the service. You must hold all of your records, including evidence of deductions and bank statements, for 6 years¹⁰. The CRA may request a review within that time, and will require these documents to confirm you have correctly filed and paid your taxes. The tax you’ll pay depends on the income you receive, with different tax brackets applying to different income levels.

filing taxes as a self employed canadian

The courts have held that “an income tax is the most typical form of direct taxation”. In parts 3D and 4, you will tally up your relevant business expenses, including any business-use-of-home expenses, if applicable. Meals and entertainment expenses, salaries, business licenses—whatever business expense you incurred that is eligible to be an income tax deduction goes here. If you’re self-employed, you will typically receive form T4A from any clients or other businesses who have paid you for your services during the previous year. These forms will have your self-employment income, and you will use them to fill out Form T2125. Most sole proprietors, and even some partnerships, must report self-employment income to the Candian Revenue Association on form T2125.


From a tax point of view, the money earned as a sole proprietor is considered as personal income. The sole proprietor pays taxes by reporting income or loss on a T1 income tax and benefit return.

  • Here is a complete overview of charging and collecting sales tax by provinces/territories.
  • Canadian tax residents are taxed on all income, regardless of where it’s earned.
  • If you are self-employed, you probably understand how difficult it can be to set aside federal and provincial taxes on all funds you receive from clients.
  • Those of you familiar with calculating the percentage of your household expenses to apply to your business are still able to utilize this option.
  • Donations can result in a reduction in taxes of between 40 and 60% of the donation depending on the province of the taxpayer and type of property donated.
  • The CRA uses information from both your 2019 and 2020 returns to confirm your eligibility to receive these benefits.
  • Came across this blog post via Google and what a wealth of information!

For a breakdown of CPP contributions by year, consult the CRA. The maximum contribution you will make to the CPP as an employee is $2,748.90, and your employer will contribute the same amount. I am a sole proprietor paying taxes by instalments, and the reminder for the Sep and Dec instalments just arrived in the mail. However, my workload/income has greatly decreased since June , resulting for the first time ever in me not having enough funds to pay the next instalments unless I dip into long-term savings. For corporate tax questions, I’d suggest connecting with a CPA to help you with your situation. As an example, I use Lisa Zamparo from The Wellth Company for my sole proprietor taxes but she also helps small incorporated businesses as well. As to your second question, you only need to register your sole proprietorship if you wish to use a name other than your personal name for your business.

The Perfect Personal And Small Business Tax Solution

You may need to complete a W8-BEN form, which is submitted to the US tax authorities, to ensure you don’t pay double taxes on this income⁵. As well as personal taxes, you’ll need to register for GST/HST if your sales exceed $30,000 in a calendar quarter². You may need to collect and pay GST/HST on sales you make of products which are eligible for these additional taxes. The rates and rules may vary depending on your location, and the location of your customer, so be sure to get the up to date information for your business³. In addition to federal taxes, there are provincial and territorial taxes to pay.My husband decided to work for himself starting this March. I will be the one who will help him with the paperwork including book keeping and pay HST for him. I haven’t registered a business yet and haven’t charged customers HST either.

filing taxes as a self employed canadian

But it’s important that throughout the year you keep track of your business revenue and expenses, and adjust your tax savings if necessary. Employees can’t claim mortgage payments, which makes the flat-rate method ideal. Similar to taxes in the U.S., the percentage of tax that you pay increases as your income increases into different brackets. Depending on their tax bracket, some Americans would pay higher income tax rates locally than in the U.S. Some of the tax exemptions are based on statutory enactments, others (like the non-taxability of lottery winnings) are based on the non-statutory common law concept of “income”. In certain cases, the deduction may require off-setting income, while in other cases, the deduction may be used without corresponding income.However, as a rule of thumb, online experts suggest holding at least 15%, to a maximum of 25% of all income to ensure you can pay your taxes with ease⁷. To avoid a shock when it comes to filing your taxes, it makes sense to set aside some money from each payment you receive throughout the year.Since you’re actually not deducting it against your income and carrying it over to the following years until it gets claimed. I am a full time employed and I Do have a sole proprietorship but my client are based in UK, so I don’t have to collect HST. So you’ve already registered for a GST/HST account through the CRA for your business? If that’s the case, then you do have to charge your customers GST/HST because you’ve registered. If you hadn’t registered, then the $30,000 threshold would have applied. I am going to be launching my gifting company in October 2020.The lack of income tax was seen as a key component in Canada’s efforts to attract immigrants as Canada offered a lower tax regime compared to almost every other country. Say you’re a freelance writer, and you pocket about $2,000 a month in cash from writing gigs. You owe the government a percentage of this two grand — it may be tempting to spend it all, but rest be assured the taxman will come knocking on your door. It is important to file on time if you receive COVID-19 recovery benefits such as the CRB, CRCB, or CRSB. The CRA uses information from both your 2019 and 2020 returns to confirm your eligibility to receive these benefits.

Personal Tools

Being a sole proprietor is very different than incorporation. Came in handy as I recently lost my job after being employed full-time for the last 15 years.

How Much Tax Will You Have To Pay?

This can be a complex and time consuming exercise, especially if you’re new to it. Use this guide to get an overview of the taxes you need to think about, and take professional advice to make sure your tax return is correctly completed and settled in good time. You file and pay your personal income taxes through your CRA My Account, and you file and pay your GST/HST through your CRA My Business Account. So if you’re just running your business under your personal legal name, you are automatically considered a sole proprietor and do not need to register your business. If you wish to run it under a differet name (i.e. Kim’s Leather Goods) then you will need to register your name. And correct, no matter how much you earn from your side business you do need to report all business revenue and expenses in your personal tax return. I’m a sole proprietor, but I did register my business under the name Jessica Moorhouse (that’s my maiden name, I use my married name for my personal life and accounts).

Filing Taxes As A Self Employed Canadian

After your first year in business , you will be required to pay tax in quarterly installments. The CRA will send you notices every quarter indicating how much tax you need to pay based on the previous year’s business income.Primarily because your employment status has a direct impact on your right to collect Employment Insurance and what you will contribute to the Canada Pension Plan . Most Canadians over the age of 18 who earn more than $3,500 per year are required to contribute to the Canada Pension Plan. If he’s incorporated, I’d highly recommend discussing the best way to set things up with a CPA. I just arrived Canada and just got a job through an agency – the thing is, I have to get incorporated. As the calculator says, it’s giving an approximate and also it’s taking into consideration the basic personal tax amount as well. However CRA doesn’t seem to make any distinction between the two and opts for the phrase “Deduction limit” while acknowledging the term “Contribution Room” as if it were the same.Not only do you need to claim that cash as income when filing your taxes, but you also need to pay tax on it. For instance, if you’re a musician and get paid for your performance in cash, that cash is considered taxable income that you need to claim and pay taxes on. If you do not claim any cash you earn as income on your taxes, that is considered tax evasion and is illegal. Tax collection agreements enable different governments to levy taxes through a single administration and collection agency. The federal government collects personal income taxes on behalf of all provinces and territories. It also collects corporate income taxes on behalf of all provinces and territories except Alberta.Or, in most cases, they’ll have taken off too much and/or you’ll be eligible for some tax deductions and credits, thus providing you with a tax refund. A tax refund simply means you’ve overpaid on your taxes, so the government is paying you back. It’s literally the government giving you back your own money. Corporate taxes include taxes on corporate income in Canada and other taxes and levies paid by corporations to the various levels of government in Canada. Generally, personal income tax returns for a particular year must be filed with CRA on or before April 30 of the following year. With this type of business structure, the business owner doesn’t have a separate legal status from their business.To make it harder to spend, deposit this money in a separate bank account you can’t access easily, such as a tax-free savings account that are not linked to your ATM card. Making sure this account is a TFSA will allow you to save the taxes on any interest earned on your tax dollars before you remit them to the CRA or Revenu Quebec. That being said, there are a few exceptions in which you aren’t self-employed but still need to set aside money for income taxes. For instance, if you earn cash tips from your job, that is considered taxable income.Remember that you can only claim the business portion of any expenses you are including on your T2125. After every tax year the CRA updates the estimated tax owing for the following year, and this is reflected in the quarterly payments. If you drive for work, you may be eligible to claim a vehicle expense deduction. But only if you keep an accurate mileage log to back up your claims. With so many tax software choices available in Canada, which tax software is suited to your specific needs? All contributions eat away at your contribution room regardless if deducted or not, as you already stated, and get tallied up as “total contributions” for that year. Love your simplified, clear, clean and simple approach, it makes it easy to follow.