Self-Employed Return
As a self-employed individual in Canada, you have certain tax obligations that differ from those of employees. Here are some key points to consider regarding self-employed taxes in Canada:
Business Registration If you operate your business under your own name, you don't need to register a separate business. However, if you operate under a business name, you may need to register it provincially or territorially.
Business Income Reporting As a self-employed individual, you're required to report your business income on your personal income tax return. This is done using the T1 form, specifically the T2125 statement of business or professional activities.
Goods and Services Tax/Harmonized Sales Tax (GST/HST) Depending on your business activities and annual revenue, you may need to register for and collect GST/HST. If your business earns less than the threshold amount ($30,000 as of 2021), you are not required to register for GST/HST, but it can be voluntarily done.
Expenses and Deductions You can deduct reasonable expenses incurred for the purpose of earning business income. These may include office rent, supplies, utilities, marketing costs, and vehicle expenses, among others. Ensure you keep detailed records and receipts to support your claims.
Canada Pension Plan (CPP) Contributions As a self-employed individual, you're responsible for paying both the employer and employee portions of the CPP. The CPP contributions are based on your net self-employment income and are due annually when you file your income tax return.
Employment Insurance (EI) Premiums Self-employed individuals in Canada are not required to pay EI premiums unless they voluntarily opt into the program. By doing so, you can access certain employment benefits, but it's important to note that you're not eligible for regular EI benefits.
Instalment Payments If you expect to owe more than $3,000 in taxes when you file your return, you may be required to make quarterly instalment payments throughout the year. These are advance payments toward your tax liability.
Record Keeping It's crucial to maintain accurate records of your business income and expenses, including receipts, invoices, and bank statements. This helps support your tax return and makes it easier to reconcile any amounts if required.
As a tax professional we can provide personalized advice based on your specific situation. We can help you navigate the intricacies of self-employment taxes and ensure compliance with the Canadian tax laws.